So who are the GSEs and how do they affect me?
First, GSE stands for Government Sponsored Enterprise. Out government has been using GSEs since 1916 in an effort to provide a buffer to minimize investment risk resulting in more accessible loans and flowing credit opportunities for the American people.
The two big dawgs are Fannie Mae and Freddie Mac. These guys insure between 60% and 90% of all mortgage loans. This means that when you got your loan through Wells Fargo or Chase, or that other Big Box Bank, your loan was likely insured by Fannie or Freddie. So when you, hypothetically defaulted on your loan and Mr. Bank man foreclosed, Fannie or Freddie paid that bank back in an insurance claim.
This answers a BIG question that so many people have had over the years…
“why won’t the bank work with me? Wouldn’t they rather have me in the house and making my payments than having the house back in foreclosure?”
The answer on all accounts involves a big belly laugh and a round of cocktails for the all of the suits who make the loans. THEY HAVE NO SKIN IN THE GAME!!! The banks get PAID to NOT work out a solution for your loan. Everyone BUT the American people have come out of this housing debacle with fresh starts, or even better, a profit.
At first, Fannie and Freddie required a government bailout to regain their footing (and boy did they!), the largest of all at a combined At first, Fannie and Freddie required the largest bailout given at $187.5 billion — because they were considered too big to fail. I guess that worked a little better than expected because their latest quarterly payment to the Treasury was a combined $39 billion. At this point, the flailing insurers have become a cash cow to the government are likely going to be supported in continuing to do so. A recent study ranked them above WalMart in profitability. How’s that for a turn around?
Where this affects you now is simple. New loan programs are more stringent on the qualifying requirements (we all knew that had to happen), FannieMae is now heavily involved in the loan making process in an attempt to minimize their liability. Interest rates will be going up soon, larger down payments will be required on new home purchases, and credit will have to be better than what has been required in recent years.
And THAT friends, is how a rebound with government aid is done. I was able to do the same thing with my $250.00 stimulus check a few years ago and now I fly home in a private jet to where I live in a castle. In the sky. Made of jewels and saffron.
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