GOVERNMENT TAKES OVER FANNIE MAE AND FREDDY MAC

What the heck is going on IN PLAIN ENGLISH???!!!!

WHY did this happen?

FANNIE MAE was established in 1938 during the Depression to expand the flow of mortgage funds in all communities. In 1968, Fannie mae was re-chartered by Congress as a shareholder-owned company, funded solely with private capital raised from investors on Wall Street and around the world. FREDDIE MAC was established in 1968 and its functions and terms of business were pretty much identical to those of Fannie Mae.

These two organizations operate in the secondary mortgage market. The secondary mortgage market is a market "for sale of securities or bonds collaterized by the value of mortgage loans. The mortgage lender, commercial banks, or specialized firm will group together many loans and sell grouped loans as securites called "collaterized mortgage obligations (CMOs)."

"A RECENT INVESTIGATION BY THE JUSTICE DEPARTMENT AND THE SEC INTO THE ACCOUNTING PRACTICES AT FREDDIE MAC REVEALED ACCOUNTING ERRORS IN THE AMOUNT OF 4.5 TO 4.7 BILLION DOLLARS AND RESULTED IN THE TERMINATION OF THE THREE OF THE COMPANY'S TOP EXECUTIVES."

HOW did this happen?

It really begins with the mortgage brokers. Many mortgage brokers were not thoroughly verifying the customers income and falsifying documentation to submit to banks so that the banks would approve the loans. Certain insurance companies grade the mortgage loans based on a risk factor. Insurance companies were grading these loans off of false information and handing the CMOs over to investment brokers to sell to investors with inaccurate grades. When it came time for payout to investors, there were no liquid funds. There were no liquid funds because the consumers/customers who were granted these loans could not make their loan payments. Banks began to catch on to the mortgage broker's schemes too little too late. Mortgage companies began to close as banks became much more cautious about what mortgage companies they would accept applicants from. Loans became much harder to obtain for the average consumer. People who had already been granted these loans had minimal options and many homes have gone into foreclosure for that reason.

Serious debts were created on all ends and this then caused "THE BUBBLE TO BURST". Sallie Mae and Freddie Mac failed to do their job correctly and for this reason, the government has decided to take over in attempt to bring back stability to the housing market.

-TO the readers: Please understand that this is my attempt to simplify the terms of the situation so that the average consumer can better understand what is happening. Surely the last short paragraph is too short to even really cover it all, but feel free to add.