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Correct, I'm not exactly disagreeing, but just explaining how it actually works. Actually, in many cases, Fannie and Freddie (known as the GSEs) literally do buy the mortgages, through a program known as the cash window [1]. Some of these they hold in portfolio, but others they sell to the private market. But the GSEs aren't technically part of the government. They are specially chartered publicly traded companies, which are currently controlled by the government agency FHFA (confusingly completely distinct from the FHA) since going into conservatorship in 2008, as a result of the subprime crisis. In any case, it's important to note that the GSEs are profitable businesses, not part of the welfare state. They are able to guarantee conforming loans because - the underwriting criteria actually accurate reflect risk of default and loss - risk is shared with the loan servicer and for higher loan-to-value mortgages, private mortgage insurers. I yap on about this because it's actually a pretty fascinating bit of public policy and financial engineering, with the result of extending massive, long-term, fixed-rate, affordable loans to regular-ass people (with a free borrower option to terminate the interest costs through prepayment, to boot!) AND create an asset class for investors that is almost as liquid and riskless as treasury bonds. The liquidity of that secondary market is what allows rates to be so low, compared to custom-underwritten products geither lent from a bank's own portfolio or securitized into private-label mortgage-backed securities. The biggest bit of controversy I know of is that it tends to fuel home price growth, benefiting propery owners over those who buy in later. [1] https://www.machinesp.com/post/a-close-look-at-the-gse-cash-... |