Real Estate Finance 15e Ch 4

primary lenders

(such as banks, thrifts, and mortgage companies), also known as loan originators,

Federal Home Loan Bank (FHLB)

11 bank owned by over 8,100 regulated financial institutions from all over the United States. Equity in the FHLBanks is held by the owner-members and is not publicly traded. FHLBanks are selfcapitalizing and exempt from state and local income taxes but receive no direct taxpayer assistance. The mission of the FHLBanks is to provide cost-effective funding to the members for use in housing, community, and economic development; to provide regional affordable housing programs; to support housing finance through advances and mortgage programs; and to serve as a reliable source of liquidity for its membership. Each FHLBank is advised by an advisory council made up of community and nonprofit affordable housing and economic development organizations from within the FHLBank's district. As a government-sponsored enterprise (GSE), the FHLB is now regulated by the Federal Housing Finance Agency (FHFA). A major function of the FHLB is to provide its members a national market for their securities. The FHLB purchases loans from its member banks and provides strong competition in the secondary market. A recent update from the FHFA reports that the FHLBanks have emerged from the financial crisis in generally good condition. They are profitable and have strengthened capital positions with their increasing annual earnings. The net income in 2016 of $3,408 million was 19% higher than that of 2015. Each FHLBank also operates a Community Investment Program (CIP) that offers below-market-rate loans to members for long-term financing for housing and economic development that benefits low- and moderate-income families and neighborhoods. Between 1990 and 2015, the CIP funded approximately $56 billion in housing advances.

2007 crash

Almost all the subprime lenders went under, and by 2011, most private mortgage insurance companies were headed for failure. In September 2008, Fannie Mae and Freddie Mac were both placed in conservatorship under the Federal Housing Finance Agency (FHFA). The conservatorship has continued far longer than was originally anticipated and is still in place in 2017. One of the primary goals of the FHFA was to stabilize the operations of Fannie Mae and Freddie Mac in order to continue the functions of the secondary market. By 2013, that phase appeared to have been successful. The second goal focused on foreclosure prevention efforts. As of the fourth quarter of 2016, the FHFA reported that the GSEs have completed nearly four million foreclosure preventions.

Typical Fannie Mae guidelines

Any loan with a loan-to-value (LTV) ratio of more than 80% must carry private mortgage insurance; cost varies according to the amount of down payment and the borrower's credit history. A 20% down payment may be entirely from gift funds; gift funds are also permitted with less than 20% down, but 5% will be required from borrowers' own funds. The seller can contribute up to 3% of the sales price toward borrower's closing costs with a 5% down payment, and up to 6% with a 10% down payment (6% may be allowed on HomeReady® Mortgage). Homebuyer education and counseling is required for first-time homebuyers obtaining a HomeReady® Mortgage, those depending on nontraditional credit or purchasing a 2-, 3-, or 4-unit property. Specific ratios for the total amount allowed for housing expenses (principle, interest, real estate taxes, property insurance, and any homeowner association or condominium fees) and for total monthly debt vary according to the type of loan product, but a conservative estimate would be 28% of gross monthly income (GMI) for housing and 36% of GMI for total debt, including housing expenses. The ratios are higher for special loan products, such as the HomeReady® Mortgage. A minimum down payment of 5% is preferred, but there are still some loan products that only require a 3% down payment. A 2014 change now allows gifts and grants for a down payment.

HomeReady® Mortgage

As little as 3% down payment Lower private mortgage insurance costs Down payment sources include gifts, cash-on-hand, and down payment assistance programs Use income from nonoccupant co-borrowers to qualify Income from nonborrowing household members helps your approval Boarder income (income from a roommate) helps you qualify Use rental income from a basement apartment or mother-in-law unit HomeReady® permits the borrower to have a higher debt-to-income (DTI) ratio—higher than 45%, up to 50%—considering available household income to provide additional assistance with household expenses, if needed.

Reorganization Under HUD (Fannie Mae)

Based on its successful operation in preceding years as a quasi-public, profitable corporation, Fannie Mae was reorganized as a fully private corporation. All Treasury-owned stock was redeemed, and a like amount of over-the-counter common stock was offered to the general public. Fannie Mae became a separate, privately owned corporation subject to federal corporate income tax, and exempt from state income taxes. It retained the benefit of government sponsorship, which includes a line of credit with the U.S. Treasury, and was called a GSE (government-sponsored enterprise). Fannie Mae could now purchase mortgages at a premium (in excess of par) and was allowed to expand its own borrowing ability by floating securities backed by specific pools of mortgages in its portfolio. The Emergency Home Finance Act of 1970 gave Fannie Mae the additional authority to purchase mortgages other than FHA-insured or VA-guaranteed loans, mostly conventional loans. This further expanded Fannie Mae's impact on national real estate finance

Underwriting Standards (Fannie Mae)

Desktop Underwriter (DU) - for lender servicers and the Desktop Originator (DO) - for independent mortgage broker-agents. After all the borrower information is submitted to DU, a response is received with regard to both credit risk and eligibility for the loan. Ideally, the response will be "approved/eligible. prospective borrower who has experienced a prior foreclosure may have to wait five to seven years before being eligible for a Fannie Mae loan. Under extenuating circumstances, the wait might be reduced to three to five years. If the home was sold as a short sale where the bank accepted less than the total amount due, the waiting period is a minimum of two years. In the past, monthly debt like a car payment that would be paid off in less than 10 months may not have counted as part of the total debt all debt will be counted regardless of the months remaining.

Establishing Nontraditional Credit (Fannie Mae)

Fair Isaac Credit Services, Inc., offers a FICO Expansion Score to assess credit risk. Fannie Mae will only allow an NTMCR if a traditional credit score is not available from any of the three major credit repositories.

Major Participants in the Secondary Mortgage Market

Fannie Mae (formerly the Federal National Mortgage Association), Freddie Mac (formerly the Federal Home Loan Mortgage Corporation), and Ginnie Mae (formerly the Government National Mortgage Association). Other participants include the Federal Home Loan Bank (FHLB), the Federal Agricultural Mortgage Corporation (Farmer Mac), and the many private real estate mortgage investment conduits (REMICs) that use mortgage-backed securities (MBSs) to collateralize their own securities. The financial market for real estate loans is based on the ability of loan originators to dispose of their new loans as quickly as possible in the secondary market in order to replenish funds while striving to manage the interest rate risk that arises from long-term, fixed-rate mortgages. This results in loan originators having to closely follow the loan guidelines established by the secondary market investors.

Administered Price System (Fannie Mae)

Fannie Mae adjusted its required yields daily in accordance with market factors and its financial needs. Under the administered price system, lenders call a special Fannie Mae rate line to secure current yield quotes and then a separate line to place an order to sell. Lenders may order a mandatory commitment whereby delivery of loans to Fannie Mae is guaranteed or a standby commitment in which the lender retains the option to deliver the loans—or not, depending on the price at time of delivery

Fannie Mae Mortgage Loan Products

Fannie Mae also purchases home construction and renovation loans, as well as the FHA reverse mortgage for seniors, which is called the Home Equity Conversion Mortgage. The 97% LTV Flexible Mortgage has been replaced by the HomeReady® Mortgage.

The Government-Sponsored Enterprises (GSE)

Fannie Mae and Freddie Mac they were not required to register their securities with the Securities and Exchange Commission or to pay state and local corporate income tax. They were also allowed to carry a large line of credit with the Treasury Department. Although their debt securities and mortgage-backed securities (MBSs) were never officially backed by the federal government, there was a public perception that the government would never allow Fannie and Freddie to default on their obligations. grew rapidly and dominated the secondary market for conforming loans (loans that fit their qualifying standards). Both developed numerous loan products that enabled more potential homebuyers to obtain mortgage loans at low interest rates. Unfortunately, when the overall housing market began to decline in 2006, housing prices dropped and made it impossible for at-risk homeowners to either sell or refinance. The two GSEs suffered large losses in areas of their portfolios, such as subprime loans and mortgage-backed securities issued by private companies.

Empowerment to Sell Mortgages (Fannie Mae)

Fannie Mae was empowered to sell its mortgages, as well as purchase new FHA and VA loans. Fannie Mae's purchases were no longer made at par but at whatever discounted price would develop a reasonable rate of return. This profit attitude was consistent with the reorganizational goal of private ownership. Fannie Mae did not have to purchase every mortgage submitted to it, only those mortgages that met its standards for marketability. Fannie Mae imposed its own criteria for acceptance of mortgages submitted for sale, which sometimes created animosity among mortgage originators. It was argued that one federal agency should accept another's standards. Fannie Mae countered with the argument that the FHA and VA standards for credit and appraisal were minimum standards and insisted that all mortgages submitted to Fannie Mae would have to meet its own standards for quality, yield, and risk. The quality and level of stability of guaranteed and insured loans were raised in order to meet these new requirements. When Fannie Mae purchases mortgages, a servicing agreement is executed, allowing the loan originator-seller to act as a collection agent for a specified fee. This fee, a rate of approximately one-fourth to three-eighths of 1% of the mortgage amount, creates a substantial source of income for the originator, depending on the size of its mortgage loan portfolio. Loan originators derive a large portion of their mortgage investment income from origination and collection fees. In many cases, especially with the mortgage bankers who issue the bulk of FHA and VA loans, the more loans that can be created, the higher the potential profits. Thus, the Fannie Mae secondary mortgage market allows loan originators an opportunity to roll over their money. By selling their mortgages, these originators can secure more funds for making additional loans, thereby collecting more origination fees. When Fannie Mae sells its mortgages, it does so in open-market transactions in which the purchasers are required to pay current prices for the securities.

Ginnie Mae

Government National Mortgage Corporation provide financing for special assistance programs and operate the securities pool. Its stated mission is to expand affordable housing in America by linking domestic and global capital markets to the nation's housing markets. Ginnie Mae does not buy or sell loans or issue mortgage-backed securities (MBSs) but instead guarantees that investors will receive timely payments of principal and interest on MBSs backed by federally insured (FHA) or guaranteed (VA) loans. Other eligible loans for Ginnie Mae MBSs include those originated by the Department of Agriculture Rural and Community Housing (RHS) and HUD's Office of Native American Programs (ONAP). Ginnie Mae MBSs are fully modified pass-through securities guaranteed by the full faith and credit of the U.S. government. Regardless of whether the mortgage payment is made, the investor receives the full principal and interest payment.

major challenge for Congress over the next few years will be to develop a structure for the secondary mortgage market to achieve its original two purposes:

Help ensure a steady supply of financing for residential mortgages Provide subsidized assistance for mortgages on housing for low- and moderate-income families

three main goals for the GSEs

MAINTAIN, in a safe and sound manner, foreclosure prevention activities and credit availability for new and refinanced mortgages to foster liquid, efficient, competitive, and resilient national housing finance markets REDUCE taxpayer risk through increasing the role of private capital in the mortgage market BUILD a new single-family securitization infrastructure for use by the Enterprises and adaptable for use by other participants in the secondary market in the future

Ginnie Mae Mortgage-Backed Securities

Pass-through certificates - Mortgage-backed securities are pools of mortgages used as collateral for the issuance of securities as the principal and interest payments are "passed through" to the investor. The interest on the security is lower than the interest rate on the loan to cover the cost of servicing and the guaranty fee. There are two types of Ginnie Mae MBSs available. The Ginnie Mae I MBS requires that all mortgages in the pool be the same type (e.g., single-family) and that the mortgages remain insured or guaranteed by FHA, VA, RHS, or ONAP with a minimum pool size of $1 million. Payment is made on the 15th of the month. The Ginnie Mae II MBS provides for multiple-issue pools that allow for more geographic dispersal. Higher servicing fees are allowed, and the minimum pool size is $250,000 for multilender pools and $1 million for single-lender pools. Payment is made on the 20th of the month to allow time for payments to be consolidated by a central paying agent.

Current Standing of Fannie Mae and Freddie Mac

Plans for the future include plans to better shield appraisers from buyback risk, a review of alternative credit scoring models, and a projected billion-dollar joint initiative of the GSEs to develop a single mortgage-backed security, with full rollout projected for the second quarter of 2019. for the foreseeable future, the FHFA will continue the government's role in the mortgage finance market.

Nontraditional credit sources acceptable to Fannie Mae

Rental housing payments Utilities Medical insurance coverage Automobile insurance payments Cell phone payments Life insurance policies Payments for household or renter's insurance Payments to local stores, such as department, furniture, or appliance stores Rental payments for durable goods, such as automobiles Payment of medical bills Payment of school tuition Payments for child care Loan from an individual, provided terms can be documented in writing Checking account, savings account, payment to payroll savings plan, or contributions to stock purchase plan Wire remittance statements demonstrating consistent amount of funds remitted over 12 months

HomePath Ready loan

The program gives would-be buyers the opportunity to earn up to 3% in closing cost assistance toward the purchase of one of Fannie Mae's HomePath properties listed on HomePath.com. The for-sale properties featured on the website are foreclosure homes owned by Fannie Mae

Ginnie Mae Platinum Securities

allows investors to combine Ginnie Mae MBSs pools into a single security and receive one payment each month rather than separate payments from individual pools.

Credit Scoring (Fannie Mae)

based on data included in one or more of the national repository files maintained by the credit bureaus Experian, Equifax, and TransUnion. The actual numerical score is derived from the FICO scoring system. Credit scores reflect the combination of many risk factors. In some instances, a borrower who has had a bankruptcy with an otherwise "clean" history of making payments may have a better credit score than another borrower who has not had a bankruptcy but has a long history of delinquent payments. A credit score of 620 to 680 may be acceptable with a larger down payment, but 720 is preferred for any LTV greater than 90%.

Ginnie Mae Real Estate Mortgage Investment Conduits (REMICs)

direct principal and interest payments from underlying mortgage-backed securities to classes with different principal balances, interest rates, average lives, prepayment characteristics, and final maturities. REMICs allow investors with different investment horizons, risk-reward preferences, and asset-liability management requirements to purchase MBSs tailored to their needs. Unlike traditional pass-throughs, the principal and interest payments in REMICs are not passed through to investors pro rata; instead they are divided into varying payment streams to create classes with different expected maturities, differing levels of seniority, or subordination or other characteristics. The assets underlying REMIC securities can be either other MBSs or whole mortgage loans. Ultimately, REMICs allow issuers to create securities with short, intermediate, and long-term maturities, flexibility that in turn allows issuers to expand the MBS market to fit the needs of a variety of investors

Organization (Freddie Mac)

established with an initial subscription of $100 million from the 12 Federal Home Loan Banks and placed under the direction of three members of the Federal Home Loan Bank board. Freddie Mac was given the authority to raise additional funds by floating its own securities, which were backed by pools of its own mortgages 1989, Freddie Mac has become an independent stock company and is a government-sponsored enterprise (GSE) like Fannie Mae. As a major player in the secondary market, Freddie Mac buys mortgages that meet stated guidelines and product standards, packages the loans into participation certificates (PCs), and sells the securities to investors on Wall Street.

FHFA Actions

establishes the conforming loan limits and sets goals for the percentage of loans to be made to low- and moderate-income households each yea available to more homeowners who were underwater in their mortgages. The program eliminated some risk-based fees, removed the current 125% loan-to-value ceiling, eliminated the need for a new appraisal, and extended the end date for HARP Under the terms of the Housing and Economic Recovery Act (HERA), the baseline limit for conforming loans must be adjusted each year to reflect changes in the national average home price, though the act prohibits any decline. Regardless of some ups and downs in average home prices between 2009 and 2016, the baseline limit remained at $417,000 for one-unit properties in the contiguous United States, until 2017, when it was raised to $424,100 in general and $636,150 in designated high-cost areas. Loan limits for 2018 have been set at $453,100, with $679,650 in high-cost areas. Loan limits are higher for multiunit properties. In high-cost areas and in Alaska, Hawaii, Guam, and the U.S. Virgin Islands, the limit is 150% of the baseline limit. The local limit is based on 115% of the FHA median house price for an area, which is well below $453,100 in most parts of the country. In no case can it exceed $679,650 (150% of $453,100).

par

full face value FHA and VA loans was made at par; making Fannie Mae an important and sought-after provider for the real estate mortgage market

Underwriting Standards (Freddie Mac)

generally follows the same conforming loan standards as Fannie Mae. One exception is that Freddie Mac only looks at total debt-to-income ratio with no set percentage for housing expense. The amount of down payment and qualifying ratios varies with different loan products.

FHLB Affordable Housing Program (AHP)

has become one of the most successful and valuable private sources of funding for the financing and building of affordable housing in the United States. The AHP is a competitive grant program created by Congress in the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 and began operations in 1990. The AHP is designed to address local housing needs. It is administered regionally by each FHLBank, working through its financial institution members and those members' community-based partners.

SUMMARY

his unit examines the roles of the various major agencies involved in the secondary mortgage market for real estate finance, including Fannie Mae, Freddie Mac, Ginnie Mae, and the Federal Home Loan Bank. Based on electronic procedures that are uniform in the evaluation of credit and collateral, a huge market for trading in securities has evolved. Local originators of loans sell them to secondary investors, thereby freeing local capital for making more loans. In addition to FHA and VA loans, the secondary mortgage market has expanded to include conventional loans on homes, condominiums, multifamily projects, and commercial developments. Operating as warehouses of money, Fannie Mae and Freddie Mac effectively redistribute funds from money-rich areas to money-poor areas. The financial crisis of 2007 was devastating to Fannie Mae and Freddie Mac, and resulted in them being placed in conservatorship under the FHFA. The FHFA now establishes the conforming loan limits each year. Fannie Mae was organized in 1938 as a federal agency involved primarily in purchasing and managing FHA-insured loans. The association evolved into a private, profit-making corporation dealing in every type of residential real estate mortgage loan. To raise funds for the purchase of these mortgages, Fannie Mae charges fees and has the authority to borrow from the U.S. Treasury. Fannie Mae markets its own securities. Freddie Mac was created in 1970 to provide a secondary mortgage market for the nation's savings associations. Through the years it evolved into a private corporation, buying and selling all types of loans and adding to the effectiveness of the secondary market. As a result of the financial crisis that started in 2007, Fannie Mae and Freddie Mac were placed in conservatorship under the Federal Housing Finance Agency in 2008. Created as a wholly owned government corporation in 1968, Ginnie Mae is under the jurisdiction of HUD. It finances special assistance programs and participates in the secondary market through its guarantee of FHA and VA mortgage-backed securities. In addition to the three major participants in the secondary market, other public and private agencies and companies have begun developing under the concept of collateralization. This concept pools existing mortgages together in homogeneous packages that are then pledged as collateral to issue mortgage-backed securities (MBSs). These MBSs are, in turn, sold to investors. Additional secondary market participants are the Federal Home Loan Bank, Farmer Mac (which deals in farm and ranch loans), and the various REMICs. The FHLB is also a GSE regulated by the FHFA, but has continued to remain strong throughout the financial crisis.

HomeStyle Renovation loan

is for the purchase and cost of renovations with a down payment as low as 3%. It is available for the purchase of a primary residence, second home, or investment property. Fannie Mae also offers loan options for teachers, police officers, firefighters, health care workers, rural housing, and Native American

Universal Debt Facility Offering Circular (Fannie Mae)

legal document that provides detailed information on all of Fannie Mae's available Debt Securities: Benchmark Bills®, Benchmark Bonds®, and Benchmark Notes®. The Offering Circular clearly states that the securities are not guaranteed by nor constitute any debt or obligation of the United States.

Farmer Mac

mission is to improve the availability of long-term credit at stable interest rates to America's farmers, ranchers, and rural homeowners, businesses, and communities. This mission is accomplished by purchasing qualified loans from agricultural mortgage lenders, thus providing them with funding to make additional loans. Farmer Mac is the secondary market for agriculture loans in the same way that Fannie Mae and Freddie Mac are for conventional and government loans.

Conforming and Nonconforming Loans (Fannie Mae)

nonconforming loans -Loans that do not meet the conforming guidelines, including maximum loan amount and down payment requirements, conforming loans - e loans that conform to the Fannie Mae/Freddie Mac qualifying guidelines buyers may pay any price for a property, making up the difference in cash. Maximum loan limits are established to set a standard for these types of loans so that they become homogeneous packages for securitization in the secondary market. Jumbo loans - Loans issued in excess of these amounts are nonconforming. - may be held by lenders for their own investment portfolios or sold to the secondary market

Electronic Underwriting System (Freddie Mac)

provides its own automatic underwriting service, called Loan Prospector e Loan Prospector software evaluates a borrower's creditworthiness using statistical models and judgmental rules. The credit evaluation indicates the level of underwriting and documentation necessary to determine the investment quality of a loan. It includes the borrower's credit reputation and financial capacity, as well as the estimated value of the property. The credit analysis uses information from the loan application and credit searches. The value of the property is derived from statistical models or from a traditional appraisal.

Freddie Mac Loan Products (Freddie Mac)

purchases both fixed and adjustable-rate loans for a predetermined amount of time from 15-year, 20-year, and 30-year terms. Loans may be for the purchase or refinance of owner-occupied single-family dwellings, condominiums, planned unit developments (PUDs), and manufactured homes. Loans are also available for one-unit to four-unit primary residence and investment properties, and single-unit second homes. no longer accepts interest-only mortgages. Freddie Mac's Home Possible® Advantage mortgages offer a low-down-payment option of 3% for first-time and low- to moderate-income homebuyers and provide additional flexibility for teachers, firefighters, law enforcement officers, health care workers, and members of the U.S. armed forces. Homeownership education is required for first-time homebuyers using Home Possible mortgages. The debt-to-income ratio may be as high as 45%.

Fannie Mae Mortgage-Backed Securities (MBSs)

purchases mortgage loans from mortgage companies, savings institutions, credit unions, or commercial banks, they are generally packaged into mortgage-backed securities (MBSs) and sold in international capital markets. Fannie Mae also issues a variety of short- and long-term debt securities to meet investor needs

Collateralized Mortgage Obligation (CMO)

the pooling of homogenous types of mortgages to use as collateral for issuing marketable securities—private companies have emerged to challenge the dominant positions of Fannie Mae and Freddie Mac. loans tied to short-term interest rates. These adjustable-rate mortgages were often sold to consumers on the premise that they could always refinance before the initial rate increased. Subprime lending doubled and tripled as these high-risk types of loans were originated, often based on lax underwriting standards. When Fannie Mae and Freddie Mac saw their market shares drop, they too began purchasing these "exotic" loans. Operating as real estate mortgage investment conduits (REMICs), life insurance companies, pension funds, securities dealers, and other financial institutions began creating new loans for their own portfolios, as well as buying and selling loans from other originators

Real Estate Mortgage Investment Conduits (REMICS)

they are companies that hold pools of mortgages that back up securities collateralized by the mortgage cash flows. Mortgage-backed securities are broken into different classes called tranches, which direct principal and interest to predetermined groups of investors. REMICs are structures for the private securitization of real estate mortgages and contributed to the opening of the general capital markets to real estate lenders. Fannie Mae, Freddie Mac, and Ginnie Mae all offer REMIC multiclass, mortgage-backed securities. REMICs offer several tax advantages that were not previously available on mortgage-backed securities. A REMIC may have various sources of income, but ownership comes in two categories: regular interests and residual interests. Regular interests are those offered to most investors. They are bond-like instruments with a face value equal to the share of the REMIC's underlying assets. Residual interests collect payments made in excess of those needed to pay the regular interests and any reserve funds set up initially. A popular REMIC is the commercial mortgage-backed securities (CMBS) pool. Before the development of this REMIC, commercial loan originators had no option but to keep these loans in their own portfolios. The CMBS industry continues to expand its participation in the U.S. mortgage loan market with over $1 trillion securitization of commercial loans

The Federal Housing Finance Agency (FHFA)

was established under the Federal Housing Reform Act of 2007 as an independent agency to regulate Fannie Mae, Freddie Mac, and the Federal Home Loan Bank (FHLB). At that point, these three enterprises had $5.4 trillion of guaranteed mortgage-backed securities (MBSs) and debt outstanding, with an 80% market share of all new mortgages. Despite the best efforts of the enterprises to provide liquidity to the conforming mortgage market while raising and maintaining capital, their ability to fulfill their mission deteriorated, raising concerns over both safety and soundness issues. On September 6, 2008, FHFA placed Fannie Mae and Freddie Mac into conservatorship. The Treasury was given the authority to provide them with unlimited capital by purchasing their stock in order to keep them solvent. At this point, the government officially backed their debt securities and MBS guarantees. Under the conservatorship, both entities operate business as usual but with stronger backing for the holders of mortgage-backed securities (MBSs) and other debt. FHFA assumed the power of the board of directors and management. Common stock and preferred stock dividends were eliminated, but all common and preferred stock remains outstanding. By 2009, the two GSEs owned or guaranteed approximately half of the outstanding mortgages in the country and financed almost 75% of all new mortgages that year. By the fall of 2011, the GSEs had provided more than $5.7 trillion in funding for U.S. mortgage markets. In July 2010, Fannie Mae and Freddie Mac were delisted from the New York Stock Exchange, currently traded in the over-the-counter (OTC) market. quoted under symbols FNMA and FMCC estimated that nearly $400 billion in tax dollars would eventually be needed to cover losses on the trillions of dollars' worth of mortgage-backed securities they own or guarantee. July 2011, USB Americas was sued for making material misstatements and omissions about mortgage loans packaged under its private-label MBS. In September 2011, FHFA announced that it was suing 17 different financial institutions for misrepresenting the quality of mortgage-backed securities sold to Fannie or Freddie. As of September 2014, 15 of the original 17 lawsuits had been settled for a total of more than $17.5 billion. The Fannie Mae and Freddie Mac bailout occurred on September 17, 2008. The U.S. Treasury was authorized to purchase up to $100 billion in their preferred stock and mortgage-backed securities (MBSs). Keeping the two afloat cost taxpayers more than $187 billion, making it the largest bailout in U.S. history (the 1989 Savings and Loan Crisis cost the taxpayers $124 billion). In August 2012, the terms governing the GSEs' dividend obligations were changed so that the Treasury now claims all profits at the end of each quarter, and provides capital if there is any deficit. Since then, the bailout appears to have been paid back with interest.

Qualified Residential Mortgage (QRM) (Freddie Mac)

would have a 20% down payment (no mortgage insurance), follow 28/36 income and debt ratios, and allow only borrowers with an above-average credit score. For any loan that doesn't meet QRM standards that is to be sold to Fannie Mae or Freddie Mac, the lender would have to retain a 5% interest in any mortgage securities. QM rule ensures that lenders only make loans to borrowers who have the ability to repay the loan. The QM rule prohibits loans with negative amortization, interest-only payments, balloon payments, terms of more than 30 years, and all "no-doc" loans. Additional requirements are that points and fees paid by the consumer may not exceed 3% of the loan amount, and the debt-to-income ratio may not exceed 43%. No prepayment penalties are allowed. A major concern for future borrowers in the original QRM proposal was the requirement for a 20% down payment. Under the new rule, the loan is considered to be qualified if the borrower's debt-to-income ratio is not more than 43%, and no burdensome down payment is required. Another part of the original rule would have required the lender to retain 5% of the loan amount for loans that did not meet the QRM standards. Because the QRM loan now comes without the risk-retention requirement, it is hoped that this will help open up the lending market.