I’m pretty certain that 95+% of all home mortgage loans are resold to Fan or Fred. This allows the originator to get their money back and originate another loan.
There is nothing inherently wrong with this setup, it worked beautifully for 40 years. What went wrong was when FNM/FRE completely eliminated the standards for the loans they would buy. There used to be this thing called a “conforming” loan. That was a loan that 1: had 20% down, 2: could be serviced by no more than 33% (estimate) of the borrower’s verifiable income 3: on a properly appraised property in a non-insane market 4: loan being under $625K. (IIRC)
When I bought my first two homes, if I didn’t have 20% down, the seller had take back a second to bring the effective downpayment into line. I had to show the income. You didn’t have those things, you didn’t get the loan, period. If the loan pmt was 34% of your income, you flat out did not get the loan. “Conforming”.
For 40 years, this produced giant bundles of mortgage loans with well under a 1% default rate that institutions treated as “good as gold”. They pretty much were.
When in the early 200x era Fan and Fed decided they would buy any damned mortgage of any quality or no quality, it created a criminogenic environment which encouraged originators to make bogus loans because they knew FNM & FRE would buy them sight unseen.
That’s what did it. Anyway, this story has been told a billion times.
“When in the early 200x era Fan and Fed decided they would buy any damned mortgage of any quality or no quality,”
What did it wasn’t that. There is nothing inherently wrong with high risk loans. The meltdown happened because they bundled together batches of crap loans, and sold them as high quality loans.
it was outright fraud and banks should have been left to collapse, European investors should not have been bailed out, and numerous people should have gone to prison.
But as the story goes, it was loan officers that worked at the office and homebuyers. The least sophisticated people in the whole equation somehow tricked the Harvard MBA hedge fund boys, international banksters, and the highest levels of government.
The woman at the quick pack store, who wanted a mortgage and was told it was normal, tricked em all with that first in her life transaction.
You’re wasting your time trying to explain this to some here. They won’t understand it take the time to learn about CRA lending, poor efforts by rating agencies, federal regulators sleeping in the job, lousy underwriting standards by mortgage brokers, banks that didn’t bother to check documents, investment banks creating odd tranches that offered a touch higher yields and buyers who didn’t bother to research their investments. You’re right, the old system worked until around the time Clinton and his party looked to expand things.