No, many US mortgages are ultimately secured by a private corporation that was created and regulated by the federal government. Their funding and ownership is (for now) entirely private.
The big fear is that if they become insolvent, the government will have to take them over and in some way absorb their debt, at which point the answer to your question would then become “yes”.
I see. Thanks for the clarification.
Not to hijack the thread, but if the U.S. Postal Service is no longer supposed to be a government agency, doesn’t that take away the government’s ability to use them to handle passports?
Try living in a smaller town, especially one that has a local (instead of a franchise) bank. For example Ames, Iowa. Believe me you’ll get to know your bankers and they’ll get to know you quite well!
I’ve read through the thread and, while I don’t disagree with what anyone has said (though I may have missed something), I don’t think anyone has quite hit the nail on the head. In my understanding, what’s going on is this.
A mortgage is an investment. Mortgage lenders could hold these loans for their own account, but this would limit the number of loans they could make, because they have only a certain amount of capital available. So, they like to sell the loans and use the proceeds to make more loans. Why? Because they make lots of income in the form of origination and servicing fees. By selling loans and the interest income they produce to investors, they increase their ability to generate those fees. Investors, meanwhile, are interested in the interest income and not in originating or servicing loans. Thus, there are two kinds of money to be made from mortgages. Originators are interested in one kind and investors in the other.
Where Fannie May and Freddie Mac come in is that they act as intermediaries between originators and investors. (Freddie Mac also originates loans, but not with a view to holding them.) They establish credit underwriting criteria for the loans they’re willing to purchase, which correspond to what investors are looking for when they purchase securities supported by those loans. Originators fund loans meeting those criteria and assign them to an FM. FM bundles a batch of loans and forwards them to the capital markets. Investors buy securities, the proceeds of which flow back to the FM and ultimately to the originators. Lather, rinse, repeat.
The problem is that if investors lose confidence in the system, that source of money dries up, fewer loans are purchased and fewer funds are available to make new loans. When fewer buyers can get loans, fewer sales happen and prices stagnate or even decline. If this snowballs, what started out as a relatively small problem becomes a big one. There’s reason to fear that’s what’s happening now. How it gets fixed is more than I know.
Look at it this way. The US State Department pays the USPS $25 (or 25% of the revenue) for helping them to do the legwork involved in receiving applications and issuing new documents. There’s absolutely no reason that the State Department couldn’t form a contract to provide similar terms to FedEx-Kinkos locations or with Wal-Mart (cringe). They obviously choose the USPS for several reasons, but there’s nothing stating that the State Department can’t farm out the business. It’s not different than them contracting out government contracts to rebuild Iraq and New Orleans to private businesses.
Why would you think so? The government hires private contractors to nearly everything.
Fannie May sells chocolates. It’s Fannie Mae.
The problem is not as much investors losing confidence, it’s that Fannie Mae and Freddie Mac guarantee the loans they buy and reissue as securities. Their investors have almost no risk. So when all the deadbeats start defaulting, Fannie and Freddie take it in the bloomers and the shorts, respectively.
The big concern is whether Fannie and Freddie have enough capital for those guarantees to be convincing in the current market, where defaults are still happening. The federal government has an agency called OFHEO which has regulation authority over the companies, and OFHEO says that both companies are fully capitalized, but the market isn’t so sure they agree, hence the stock free-fall.
PS My wife is a Fannie Mae employee.
See, I always thought that the Fannie Mae Corporation had become so successful in selling chocolate that it was able to branch out into banking.
Fannie Mae is the Federal National Mortgage Association. The industry started pronouncing their acronym, FNMA, as Fannie Mae as a kind of a joke. After enough years of that it stuck, and the company finally trademarked the name (with a spelling that distinguishes it from the candy company) and uses it in all their PR now.
I’m quoting myself because I want to clarify what I was thinking of. Could one of these companies decide that this mortgage business was too risky and go into another line of business instead? Could they undergo mergers? Could they be sold to a private equity firm?
Probably not under the terms of their government charter. HUD, I believe, has oversight and regulatory authority to determine that activities of Fannie Mae and Freddie Mac are not within the bounds of their charter.
