Expenses for tuition, room, and board at a secondary education institution can be loaned to a student and paid off over time in the form of a student loan. Tuition and other college expenses have inflated at a much faster rate than the rest of the consumer price index. These institutions can charge more and more as they experience student housing crunches and an ever-growing demand for college education. Continue reading...
Ginnie Mae is the colloquial name for the Government National Mortgage Association, or GNMA. It brokers mortgage-backed securities which are backed by the full faith and credit of the US Government. Among Ginnie Mae, Freddie Mac, and Fannie Mae, only Ginnie Mae is actually owned by the government and issues securities which are backed by the full faith and credit of the US Government. Ginnie Mae’s mission is to increase liquidity and decrease risk to mortgage lenders so that Americans are able to purchase homes. Continue reading...
Freddie Mac is a government-sponsored company which purchases mortgages from banks and securitizes them for sales to investment banks or individuals. Freddie Mac is not a government organization, but was established by a congressional mandate in the 1970’s. It’s proper name is the Federal Home Loan Mortgage Corporation (FHLMC). The company’s purpose is to make mortgage debts into marketable securities by purchasing the mortgage risk and cash flow from banks and dividing into tranches which are sold to or through investment banking institutions. The securitized mortgages are known as Collateralized Mortgage Obligations, or CMO’s. Continue reading...
Mortgage modifications are arrangements agreed to by the lender that are outside of the contractual mortgage agreement, in instances where the borrower experiences unique circumstances or hardship. An example of a mortgage modification is a loan forbearance, which is when a lender agrees to let the borrower temporarily stop payments for an agreed-upon span of time, before resuming payments with an added repayment stipulation for the time spent not paying. Continue reading...
When a mortgage loan is made to a consumer, the bank or loan institution is the mortgagee, while the consumer is the mortgagor. Mortgages are long term loans secured by the real property of the individual borrowing the money, and they are generally used for homes, called home mortgages. The lending institution, which might be a bank or a mortgage company, is the mortgagee, lending money to the homebuyer, who is the mortgagor. Continue reading...
HASP came into being in 2009 in response to the housing market crash that made life very difficult for many Americans. Also known as the Making Home Affordable Plan. It called for the creation of various programs and support for lending institutions, consumers, and Fannie Mae and Freddie Mac. The Homeowner Affordability and Stability Program (HASP) has three main parts. Part one is to aid responsible homeowners who are suffering from falling home prices and have become underwater on their mortgages. Continue reading...
In 2009 the Federal Housing Finance Agency (FHFA) commissioned the HARP program to help Americans upside-down on mortgages to get approved for mortgage refinancing. This is only available to people whose mortgages are already owned by Freddie Mae and Freddie Mac. Many Americans find themselves upside-down, or underwater, on their home mortgages, particularly after the housing bubble popped in 2008. To be underwater means that there is more owed on the loan than the home can serve as collateral for. Continue reading...
When deciding whether to issue a mortgage loan to a customer, a bank or lender will look at the housing expense ratio, which is the annual cost of the mortgage payments, including all insurance and expenses related to owning the property, divided by the gross income of the individual. Gross income is used because tax deductions can be taken for mortgage payments. If a proposed mortgage leaves the borrower with a housing expense ratio (HER) over 28%, they will usually not be approved for this mortgage loan. The HER is found by dividing all annual costs associated with the new home with the gross annual income of the (proposed) borrower. Continue reading...
A jumbo loan is a mortgage loan that exceeds the conforming loan limits set by the Office of Federal Enterprise Housing Oversight. For borrowers with low debt to income ratios and good credit scores, jumbo loans are often utilized for purchases of larger or luxury homes. Often times jumbo loans are too large in size to be guaranteed by Fannie Mae and Freddie Mac, and are securitized in other ways. Continue reading...
The House Price Index (HPI) tracks average prices of homes using data from sales and refinancing, tracking the data for the same residential properties over many years. The Federal Housing Finance Agency (FHFA) publishes it quarterly and relies on data from Fannie Mae and Freddie Mac. The HPI is an important index for the real estate and mortgage industry, as well as the economy as a whole. It uses information from Fannie Mae and Freddie Mac about home sale prices and the refinancing value of homes, tracking the sales and refinancing prices of homes in the Fannie Mae and Freddie Mac databases, all the way back to 1978. They do this using a weighted repeat-sales method. It is published quarterly by the Federal Housing Finance Agency (FHFA). Continue reading...
HERA was passed in 2008 in response to the subprime mortgage crisis that rocked the entire economy and left many Americans underwater on their mortgages. People would need to refinance their mortgages and this bill approved the funding to help that happen. The Housing and Economic Recovery Act did several things, all aiming to help American consumers and lending institutions get out of the recession left by the subprime mortgage bubble in 2008. Continue reading...
Bubbles form in markets when there is such a large amount of demand that it drives prices up to levels where it is no longer supported by inherent value. Bubbles have effects on an interconnected web of economic forces and institutions. It was postulated before 2008 that the housing market could not form a bubble in the same way the stock market could, but the subprime meltdown proved those theorists wrong. Bubbles are when a market suffers from unnatural price inflation due to speculation, bandwagon investing, and, to some extent, misinformation. Continue reading...
The Federal Home Loan Bank Act was signed into law by President Hoover in 1932. The goal of the legislation was to make liquidity more accessible to banks for the purpose of making home loans, so that more Americans could acquire permanent residences. The bill established the FHL Bank system, which now consists of 11 FHL banks. The Federal Home Loan Bank Act of 1932 established the FHL Bank system, which is a co-operative banking network for banks and other lending institutions who make home loans. The FHL banks are owned by their member institutions, who purchase stock in the bank and are then permitted to take loans out from it, using that money to provide loans to customers. Continue reading...
The Federal Housing Finance Association is the Conservator of Fannie Mae and Freddie Mac since the 2008 meltdown. The FHFA was established as an independent government entity to oversee the secondary mortgage market. The FHFA is a regulatory agency which took over for the Federal Housing Finance Board and the Office of Federal Housing Enterprise Oversight (OFHEO). It was created in 2008 by the Housing and Economic Recovery Act (HERA), and it oversees the operations of Freddie Mac, Fannie Mae, and the 11 federal home loan (FHL) banks. If you’ll recall, Fannie Mae and Freddie Mac provide liquidity to banks and transfer risk from them by buying their mortgage cash flows from them. Continue reading...
Most mortgage companies today are brokerages that do not underwrite or fund the loans themselves. They help to place customers with the most competitive loans that make sense for their situation and personal finances. Many small mortgage companies went bankrupt in the housing bubble of 2008. Mortgage companies are known as loan originators since they pair customers with loans that suit them and get the process started. Some companies also fund mortgage loans, but most are basically brokerage services that do not lend the money themselves. Continue reading...
A high volume of loans issued to those who were unable to repay them, and a high volume of derivative securities traded on top of these loans, contributed to the subprime meltdown of 2007-2009. A large amount of collateralized mortgage obligations (CMOs) and other collateralized debt were owned by large institutions and investors as alternative high yield investments prior to the crash of 2007-2009. Continue reading...
Market discipline is a term which describes the restraint implicitly required of financial services companies in order to remain solvent and financially strong in the face of market pressure instead of regulatory pressure. The markets can sometimes make a ruling on which companies were conducting their business according to prudent and ethical guidelines, without the need of an SEC audit or the intervention of any other regulatory agency. The companies that weren’t will lose their customers and go bankrupt, in no particular order. Continue reading...
Environmental regulations or lawsuits occasionally force companies to comply by taking measures or acquiring technologies to abate their environmental impact, and the overhead of such projects is called Abatement Cost. Increasingly over the last 20 years or so more countries and states have begun imposing laws on companies to reduce their carbon emissions, noise pollution, and various other environmental impacts. The costs of enacting measures or technologies to help them comply with such regulations is known as abatement cost. Continue reading...
In the dynamic world of financial markets, traders are constantly on the lookout for any tools or indicators that can provide them with an edge in predicting market moves. Two such indicators, bullish divergences and bearish reversal signals, play a significant role in technical analysis. In this article, we'll delve into the intricacies of these signals and explore their potential to forecast market trends. Continue reading...
Agencies are entities which are created by the federal government to fulfill an obligation or role that is deemed to be in the best interest of the country. Agencies might also also be known as Commissions, and they can be formed by legislative action, or through the direction of a specific Department or Branch of the government. Some federal agencies are known as Commissions, Task Forces, or Administrations, but all are generally tasked with a specific responsibility or focus. Continue reading...