Contents of this article
- 1. The whole story of Fannie Mae and Freddie Mac
- 2. Please submit a more accurate English translation
- 3.MBS refers to
- 4. Background and historical environment of the 2008 financial crisis
The story of Fannie Mae and Freddie Mac
In 1938, the government funded the establishment of Fannie Mae Corporation to engage in financial business to expand the flow of funds in the secondary housing consumer market.
In 1944, Fannie Mae's authority was expanded to include loan guarantees, and the company was primarily run by veterans.
In 1954, Fannie Mae developed into a joint-stock company.
In 1968, Raymond H. Lapin became the president of Fannie Mae. Within 30 years of his taking office, he modified the company's system and turned it into a private joint-stock company.
In 1970, Fannie Mae stock was listed on the New York Stock Exchange.
In 1981, David O. Maxwell became the company's CEO. He adjusted the guarantee fee and introduced marketable securities services (MBS).
In 1984, Fannie Mae issued corporate bonds overseas for the first time, and since then the company's business has entered foreign financial markets.
In 1991, James A. Johnson became the company's CEO.
In 1992, Fannie Mae became the largest issuer and guarantor of MBS, surpassing Ginnie Mae and Freddie Mac.
In 1999, Franklin D. Raines became Fannie Mae's president, and he increased the guarantee to $240,000.
Before joining Fannie Mae in 2000, Mudd worked for GE’s capital and finance department for a long time. He served as Fannie Mae’s chief operating officer from 2004 to 2005.
In August 2008, Fannie Mae’s board of directors announced announced that it has made significant personnel adjustments to its senior executives and replaced three senior executives. CEO Daniel Mudd once again won the support of the board of directors and continued to serve as the head of Fannie Mae.
On September 7, 2008, the U.S. government announced that it would take over Fannie Mae, the troubled U.S. residential mortgage financing institution, with immediate effect.
Please submit a more accurate English translation
As the U.S. housing market cools, worries about investing in risky home loans are rising.
Last month, two arbitrage funds run by investment bank Bear Stearns nearly collapsed under their debt. They borrowed billions of dollars from lenders and invested in securities seeking secondary mortgages.
Bear Stearns favors a $1.5 billion rescue fund for one of the funds. Investors could lose everything in other funds.
Bear Stearns's troubles are an example of the risks involved in mortgage-backed securities. These investments help drive interest rates for U.S. homeowners by nearly 70 percent. But as interest rates have risen, some homeowners are now finding it difficult to pay their mortgage payments and keep their homes.
Americans usually need a mortgage to buy a house. Subprime borrowers are people who do not have a strong credit history. The lender will charge them more because there is a greater chance that they will not be able to repay the loan.
Loans from subprime lenders often depend on creditworthiness. Once processed, the loan is usually sold to an investment bank. Loans of similar risk levels are pooled together and then sold as mortgage-backed securities to investors around the world. The higher the risk, the greater the reward.
The Government National Mortgage Association, known as the Government Residential Mortgage Corporation, and two other organizations known as the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation, create a large number of mortgage securities . But as Lehman Brothers increased their stake, the investment bank was led by them. Last year, it processed more than $50 billion in securities repayments through subprime mortgages.
It is possible to sell a loan from a mortgage lender to raise money for a new loan. But the risk that they can spread can also be seen as an invitation to bad lending. Last week, federal agencies released a final statement on subprime lending. It provides guidance for lenders to help borrowers make payments on an adjustable-rate mortgage. The goal is to avoid payment shocks when interest rates rise, usually after low interest rates begin. The agency also warns about borrowing activity that jeopardizes homeowners' interest rates.
MBS refers to
Asset Securitization
Asset Securitization usually refers to a group of assets with poor liquidity but expected to generate stable cash flow through a series of structures The process of arranging and combining, separating and reorganizing its risk and return elements, and converting the income rights of the expected cash flow of the combined assets into securities that can be sold and circulated through credit enhancement.
MBS
Mortgage-Backed Securities (MBS) is an issuer that pools housing loans and uses the principal repayment of the loans to fixed income bonds backed by interest cash flows.
Three major institutions
It is an asset securitization product mainly issued by American housing professional banks and savings institutions using the housing mortgage loans they lend. Its basic structure is to collect loans that meet certain conditions among the housing mortgage loans extended to form a pool of mortgage loans, and use the regular cash inflows of principal and interest from the loan pool to issue securities, and The security is guaranteed by a government agency or government-backed financial institution.
Currently, MBS data mainly comes from three institutions, namely:
Loan
Loan is a loan made by an individual lending entity. It is a loan certificate signed by the lender and the bank, and it is the atomic unit that makes up the Pool. If you need to query the data, you can There is a Pool-By-Pool form, and there can also be a Loan-By-Loan form.
In the financial field, a loan (borrowing, loan) is an entity (institution or individual) based on a certain interest rate for another entity. Providing borrowing activities; this process will generate a bill voucher, recording special information such as principal, interest rate, repayment date.
For example, FNMA assigns a mark to a certain loan entity, called a loan number, and it is issued by FNMA The only thing in a loan that represents the cash flow behind the monthly repayments.
Pool
Pool is a collection of loans with similar characteristics. Based on this collection, certificates are issued through standardization (such as setting a unique cusip, etc.), and investors purchase the certificates.
In a narrow sense, Pool is a collection of loans with common characteristics:
For example, FNMA packages a group of loans with certain common characteristics into a pool and specifies a unique identifier called pool number. In the future, it will use this identifier to track the monthly repayment cash flow of all loan numbers at the bottom of the pool.
Bond
Bond is a certificate provided by the bond issuer to the bond owner. It is also a financial instrument and is generally issued in the primary market by governments, credit institutions, etc.
It can be understood as packaging and combining a series of Pools into Bonds. Bonds can be traded directly in the market. Each Bond generates cash flow from the underlying Pool, and the cash flow comes from the monthly repayment of the loans that make up the pool.
Features:
CMO (Collateralized Mortgage Obligation)
Given the limitations of pass-through securities, the emergence of Collateralized Mortgage Obligation (CMO) allows a securitization transaction to provide Securities with different maturities, different interest rates, and different credit ratings.
The reason for the emergence of CMO is investors' requirements for various investment periods and cash flow stability.
The basic principle of CMOs cash flow restructuring technology is to put mortgage housing loans held by banks or other pass-through housing loan-backed securities (MPTs & PCs) into an asset pool (pool), and then use the cash flow generated by the asset pool It is decomposed into different levels (tranche), and securities at each level are issued independently.
WALA/Age
"The most recent weighted average number of months since the date of note origination, weighted by Current Balance."
A poolno is composed of multiple loans , each loan is counted monthly from its inception to the present. WALA (also called Age) is calculated based on the weighted average of the current value of the loan.
Coupon rate
Stated annual (percentage) of interest paid on a fixed-income (fixed income) investment (investment).
That is, fixed year interest rate.
CUSIP number
Attributes of CUSIP number:
Factor
Properties of Factor
Ginnie Mae I (GNMA1)
GNMA1 securities are single-issuer pools.
Ginnie Mae II (GNMA2)
GNMA2 securities are multiple-issuer pools or custom pools.
Issue date
The date on which a security is issued or created.
Issuer
An entry which issues and is obligated to pay amounts due on securities.
According to the issuance record, The issuer is responsible for paying the amount of the securities, that is, the loans corresponding to those securities must be paid, before the issue can be packaged.
Jumbo pools
Jumbo pools refer to a "huge" pool; GNMA2 will generate such large securities, which are generally more varied than single-issuer (gnma1) pools , will change the interest rate by one percentage point.
The background and historical environment of the 2008 financial crisis
Historical context of the 2008 financial crisis:
The initial liquidity crisis can be viewed in hindsight as being caused by the earlier subprime housing credit crisis. Northern Rock was one of the first to be hit, as it is a mainstream British bank. The bank has been unable to borrow additional funds to repay maturing debt incurred in mid-September 2007. Without continued cash infusions, the highly leveraged nature of its business could not be sustained, ultimately leading to its receivership and early signs of the disaster that would soon befall other banks and financial institutions. Excessive borrowing under lax signature affordability standards is one of the characteristics of the U.S. mortgage bubble. Credit flooded and resulted in a flood of subprime mortgages (subprime loans), and investors believed that these risky loans would be mitigated by asset securitization. Since 1989, the MBS yields issued by Fannie Mae, Freddie Mac, and Ginnie Mae, the major institutions that issue MBS in the United States, have been 137 percentage points higher on average than the U.S. ten-year Treasury bond yield. The basic point attracts investment from many legal persons. The Lehman Brothers MBS Index shows that regardless of the rise or fall of interest rates, the index has had positive returns for ten consecutive years since 1996. The worst year was 2.1% in 1999. During the same period, the MSCI Global Bond Index had positive returns in 1999, 2001, and 2005. But it is a negative rate of return. This strategy seems to expand and spread in a domino effect. The damage caused by the failed securitization program swept through the housing market and its companies, triggering the subprime housing credit crisis. The crisis caused a larger amount of silver to be sold off in the market by banks. This excess supply of housing has caused the prices of surrounding housing to drop significantly, making them vulnerable to being repossessed by the courts or abandoned. This result paved the way for future financial crises. Initially, the affected companies were limited to those directly involved in homebuilding and subprime lending, such as Northern Rock and National Financial Services. Some financial institutions engaged in mortgage securitization, such as Bear Stearns, became victims. On July 11, 2008, the largest mortgage company in the United States collapsed. IndyMac's assets were seized by federal agents after they were crushed by tight credit, as home prices continued to slide and foreclosure rates rose. Financial markets fell sharply that day as investors wondered whether the government would try to bail out mortgage lenders Fannie Mae and Freddie Mac. On September 7, 2008, it was late summer. Although the federal government took over Fannie Mae and Freddie Mac, the crisis continued to intensify. Then the crisis began to affect general credit that had nothing to do with real estate, and by extension, large financial institutions that were not directly related to mortgage lending. Most of the assets owned by these institutions are derived from income associated with home mortgages. For these securities with credit loans as the main subject matter, or credit derivatives, they were originally used to protect these financial institutions from the risk of failure. However, due to the occurrence of the subprime housing credit crisis, the number of members affected by these credit derivatives has increased, including Lehman Brothers, American International Group, Merrill Lynch and HBOS. Other companies have begun to face pressure, including Washington Mutual Bank, the largest deposit and lending company in the United States, and affecting large investment banks Morgan Stanley and Goldman Sachs Securities.
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