How do fannie mae and freddie mac make money

Are Fannie Mae and Freddie Mac Poised to Jump on Strong Housing Trends? -- The Motley Fool

Contrary to what you may think, mortgage lenders don't make their money on interest. They cash in your mortgage by selling it on the secondary investment market.

If a lender had to wait 30 years to receive full payment on its mortgage loans, it wouldn't have enough liquidity to make loans to other borrowers. The largest purchasers of mortgages on the secondary market are two government-sponsored enterprises GSEs: After Freddie and Fannie purchase mortgages from lenders, they sell them as securities in the bond market. This provides lenders with the liquidity to fund more mortgages, and until , the mortgage-backed securities MBS sold by Freddie and Fannie were considered solid investments.

But when hundreds of thousands of people began to default on their mortgages, those securities plummeted in value. Because so many large international investment banks had bet heavily on MBSs, the rising mortgage default rates in the U.

Treasury to inject emergency liquidity into the credit market. Even after the government takeover, Fannie and Freddie were still publically traded companies until their share prices dipped below the minimum price requirements and were dropped from the New York Stock Exchange in [source: Even with all of their problems, Fannie and Freddie are still the largest purchasers of mortgages on the secondary market and an essential component of the nation's credit system.

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Freddie and Fannie are making money again, and everyone wants it - The Washington Post

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