The Crisis of America's Cities by Bartlett Randall

Author:Bartlett, Randall
Language: eng
Format: epub
ISBN: 9781317457695
Publisher: Taylor & Francis Ltd

The “Mae Sisters” and Secondary Mortgage Markets

One problem still remained, however. Even though lenders were assured that they would not lose money in real estate investments, they might now have to wait up to twenty-five years to recoup it all. Their capital was safe enough, but it was very “illiquid,” and lenders were reluctant to commit it for such long periods. If they could simply “call” the loan at any time, the capital would be liquid but homeowners would be under constant threat and the advantages of the liberalized terms would be lost. If there were some other way for them to turn their mortgages into cash on short notice, the last obstacle to widespread home financing would be breached. Enter the now well-known Mae sisters, Fannie and her younger sibling Ginnie. (They also have a cousin Sallie who devotes her full attention to student loans rather than mortgages.) Fannie Mae is the oldest, and though known to the industry and the press by that quaint name, her official birth certificate lists her more formally as the Federal National Mortgage Administration. First using federal funds, and later capital raised in bond markets, Fannie Mae purchases mortgages from lending institutions on the “secondary mortgage market.” If ever lenders need to turn their holdings into cash they can do so without affecting the borrower’s terms and payments. The loan runs for its full period and the established payment schedule is unchanged, only now the payments flow to Fannie Mae rather than the original lender. Funds from the general bond market can thus be channeled into housing markets all across the nation, and at the same time, long-term mortgages can be made highly liquid. Fannie Mae works behind the scenes, but she has played a major role in democratizing housing in America. In 1968 Fannie Mae was split in two, emerging as a much slimmer Fannie Mae and with a new sibling, the Government National Mortgage Administration, known as Ginnie Mae, a purchaser of mortgages from special government-assisted projects like Methunion Manor.

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