Fannie, Freddie and the Fed

The Federal Reserve said this week it will no longer buy mortgage backed securities from Fannie Mae and Freddie Mac. Some people worry mortgage rates could rise as a result. Paddy Hirsch explains why. #MarketplaceAPM #EconomicExplainers #FannieandFreddieMac
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[@ShortsSoup]

14 years later and youre helping people tremendously still! Thank you!!!

[@thejamesinator17]

Paddy, you're a fantastic teacher. Thank you for your work!

[@Eradifyerao]

Nothing like a good analogy to clarify a fickle and complicated situation. Thanks for this - very informative!

[@aartijarwani]

It's strange how you make even the most complex stuff seem so simple. Thanks sir!

[@MDA-di4px]

Thank you very much Mr. Hirsch. The topics on your videos are very informative and extremely well explained!

[@octdavian]

Excellent work, Paddy! Thanks for taking the time in instructing us all!

[@janetaguilar6007]

THANK YOU for explaining it so perfectly!

[@rachelvirienna]

Thank you for these!

[@lucynganje2448]

You made me want to keep watching. Damn if all teachers were like you. Thanks for being so explicit.

[@troymsmith35]

At first I was wondering if I was going to stay interested with the car illustration but very great job bringing it all back around!

[@abhinavitsmebellamy]

Thank you, Sensei!!

[@davidalen9279]

excellent clear concise simple explanation. thank you sir.

[@davidalen9279]

brilliant. thank you!

[@Radjabov]

Thanks for the excellent work... greetings from Mexico!

[@dayanaromero8119]

Thanks so much for the great explanation

[@Bluebreezi]

Such great drawing and explanation lol . Love the content and love the teacher.

[@akamouzis]

love these videos, keep them up!!!

[@evanchristiansen7236]

Best Video I have seen explaining this. Thank you

[@12101andyoutub]

i love these videos

[@0musing]

Hey Patty, Its "Good friday" and I am already drinking :)...health to you and thanks for these informative vdo's

[@waiguoren3100]

Hi Paddy, I've watched a number of your very informative videos, I think that the analogy of Freddie & Fannie selling cars is apt, because it seems that Finance has become something akin to a used-car lot. The name of the game seems to be to securitize debt by putting lipstick on pigs and seeing if someone buys it. Something seem terribly unseemly about the whole process but I'm unable to put my finger on it now. I suspect that it has to do with the people usually involved in these sorts of activities.

[@dannyshf1993]

thank you for the brilliant explanation to a layman

[@aanmerie]

14 years ago should have gone viral !

[@LamNguyen-up4fb]

Is it just me or did he slip an Obi-Wan reference in there? (5:30)

[@jacobhernandez4347]

You sir did perfect job , thank you very much I have so many questions about how brokerage firms work, currently interested in the real estate sector. on an investment stand point and just getting familiar with this sector Ive been reading 10k reports from different business all of which manage securities and real estate properties... any ways thank for this video

[@tfrenn]

Your the best.

[@babyz1354]

Watching this in 2020

[@Artan102]

Your point on Uncle Ben or the Fed buying up the securities and so Banks saying to borrowers they can loan more money because now they can sell their mortgages to Fannie Mae and Freddie Mac. The only problem is that Banks will never reveal their intentions to package and pool the borrowers loans or mortgage debt and sell it to investors or hedge funds. This is the problem with the mortgage industry; the borrowers are the ones who suffer while their mortgages are pooled and packages to investors, financial institutions and banks.

[@davidazinger5639]

@@loaizar95 the only reason they could be pooled together is the fraudulent ratings on bonds from the Big 3.

[@davidazinger5639]

@@loaizar95 If the ratings were honest the mortgage bonds (pooling) could not have sold, and therefore, the pooling of mortgages would have come to a screeching halt. The rating SELLS THE BOND; the rating creates the market by opening the floodgates of capital from institutional investors who require a AAA rating. They go hand in hand.

[@davidazinger5639]

@@loaizar95 and if the pension funds had not bought them you would not have had a financial crisis.

[@davidazinger5639]

@@loaizar95 Had RA done their job -- it would have been avoided. To say crisis unavoidable is to not understand what happened.

[@davidazinger5639]

@@loaizar95 Part of understanding something is the ability to make it simple. THIS IS YOUR STATEMENT: "the fact that the ratings were fraudulent and that the mortgages were pooled together do not have anything to do with each other. you can pool mortgages together regardless their ratings." THIS IS COMPLETE STUPIDITY. If you understood the crisis, you would know how to make it simple, but you don't, so you hide behind confusing statements to cloud your ignorance.

[@nansp853]

Awesome!

[@manemane5410]

Haha same endings every time I like it

[@LiguoKong]

good job, but hasn't explained why the demand suddenly dropped?

[@Alexander-vg4ss]

Whatever happens, we know it will leave everyone very badly needing a drink

[@himmie1]

Why doesn't the fed go straight to the banks and stop giving all this money to fanny and Freddy. Fanny and Freddy are essentially making profit from the country. Why not loan money straight to the people

[@marketplaceAPM]

himmie1 That would look too much like government directly propping up the housing market. Fan and Fred are like a cutout. The effect is the same, but it looks less interventionist.

[@dixonmicucci9271]

+Marketplace APM You omit how Congress appointed FNMA/FMCC executives & CEO's beholden to the DemParty, who then hired lobbyists for FNMA/FMCC (given Obama White House jobs in 2009, just after their corrupt scam collapsed in 2008, because instead of banking experience, they were chosen for whom they knew.), and then they blamed Bush/McCain, who ironically warned that -- in addition to FNMA already had an Enron-like accounting scam (with Obama's buddy/donor F.D. Raines -- note the initials for what party FD Raines was born into & served loyally!) -- FNMA/FMCC must be regulated (McCain also sponsored a bill o do this; Congressional Dems threatened to filibuster it), because their lobbyists had convinced Congress to approve very risky lending standards.

[@InnovatorAlvin]

in quantitative easing, isn't the gov directly involved with banks to encourage banks giving loan

[@HusseinDoha]

himmie1 Fanni and Freddie turn the loan into a security and investors buy it (you pay your mortgage for 10-15-20 years, banks can't wait for your monthly $1500 payment). Fanni and Freddie then return the money to the bank and the bank can lend money again. The Fed lend money and run monetary policy. They don't creat these financial instruments. Also it worth saying that Fanni and Freddie are Government created enterprises to help Americans own houses. They operate like any other company but Government can restructure them and regulate them if it wants.

[@twindentists123]

No - in QE the fed buys treasury bonds from the government who then sells them on to banks and investment firms to generate money for government spending

[@MrAkurvaeletbe]

Why do people buy securities? How do they make money from them? Great videos btw!

[@CheefCoach]

Because they have money. So they are buying debt. So when home owners pay money to banks, which is mortgage money, banks are transfer that money to people who own securities. So simply speaking people who buy securities are loaning money to people who want's to bought homes for interest rate.

[@Fierce77551]

Wow

[@sganet_]

@theDeckisStacked Yup, if interests are high, eventually everything will go back to normal even thou it could take decades at this point or really high interest (25-35%). Currently, over half the people are not paying the unconstitutional income tax on our wages/labor, with the amount Ben is printing while buying these bad assets in our name and our children's name, hyperinflation would seem extremely likely.

[@kvs123100]

How investors earn from buying MBS? How and what are the returns on MBS?

[@Lucas48288]

It basically functions the same way as a bond giving a %yield payout and possible capital gains if it appreciates in value.

[@bettertechenterprises4760]

It’s 10 years later, and loans have gone down not up

[@Oldiesyoungies]

5:00 doesn't fall in demand mean a fall in price?

[@Sweet_lady1992]

I couldn’t understand this…

[@ramaswamyvenkatesh7639]

You are brilliant . Nice presentation . Congrats .

[@lovelyday50]

Securities cannot be merchandise. Is that the root of the problem?

[@Eric345]

The banker will give fewer home loans because they’ll stay in the books. 😳😗

[@lisajason111]

always ends up badly......

[@adnanchowdhury9460]

so Fannie and Freddie are creating Mortgage backed securities and selling them to investors. But how do investors make money from MBS? and is MBS some kind of insurance? If anyone can answer that i would be very glad.

[@Artan102]

Why can't Banks and financial institutions make money without the interest or Usury; this is what is destroying people's livelihoods. With all the technological and scientific advancement, we still have to live a system of usury, low or high interest rates, buy things we can't afford on credit and later on life lose our savings and even homes on foreclosures. Inflation and deflation, low or high interest rates, it doesn't matter because as long as we allow to live in a system of interest rates, usury and credit and debt we can never become a free citizens except to work only to pay our bills with interest and credit.

[@loaizar95]

I partially agree with you that our system is fucked up. But citizens do not have to access credit if they do not want to. The problem is their mentality and obsesion with consumption that leads to as you say, buying things they cannot afford and therefore relying on toxic debt for it that ends up screwing their lives.

[@TheBanjoShowOfficial]

That’s kind of the idea

[@TheBanjoShowOfficial]

@@loaizar95 I agree except probably 99% of Americans that will ever consider buying a home will be utilizing credit to have that dream be realized. The same thing with owning almost any newer model vehicle from the past decade. So, while it is certainly a choice, the reality is that most Americans will not even be presented with that choice as being realistic in their lives

[@loaizar95]

@@TheBanjoShowOfficial True! But most of them are happy with that because getting that credit is what allows them to own a home in the first place! if banks did not charged interests they would not exist and fewer people would be able to own a home. But thats not usury, just a deal design to have both parties involve happy with the outcome of the deal. Just because the system does not satisfy everyone does not mean that it is an inherently bad system.

[@eldstgilmorbarboydodellatb4413]

👍🏿🤘🏿

[@klatlap]

If it was illegal to sell mortgages this would all be avoided, there was enough profit in making loans via the bank, the problem was they wanted all the profit now, that's why they sold them.

[@cooldudecs]

Government intervention in the free market is never good...

[@cbrockbishop1566]

i just don't get why we need F&F in chain? seems like a middle man that just increases the complexity and siphons off money between the Bank and the end consumer..

[@muzammil_babar]

It's great learning stuff from De Nito

[@creative-liberty]

This is a whitewash on a whiteboard. The analogy is horrible because the FED would never buy cars to profit consumers, like it did with MBS for investors.

[@johnkingangimwithiga]

PROMISE YOU GUY THIS YOU PULL A 99 HOMES ON ANYONE AND WE FIND OUT ALL HELL WILL BREAK LOSE SORRY NOT SORRY

[@mikeduncan7552]

Where does the Fed get money to buy these securities? Why did you not say where Ben's money comes from. The Fed prints money by FIAT into existence. This is by its nature inflationary. The crux of the housing crisis, is that consumers took out home loans who did not have the means to be able to service their giant home loans. As a result, home owners defaulted on their mortgages thus causing the the associated risky MBS to drop in price. The big banks levered these MBS and invested in other foolish risky bets. The Fed stepped in and bought the MBS and bad bank loans because the banks were stuck with toxic non performing assets. The Fed bought all these garbage securities that had no value because they were non-performing. The Fed bought the junk in the market which banks were holding. One the junk left the banks books, the banks balance sheets were healthier. The problem now is that the Fed has on its balance sheet 2+ trillion in bad debt MBS which no one wants to buy. The Fed is the problem. The Fed is not the solution or saviour. Banks only approved risky loans knowing that the Fed would ultimately rescue its member banks from their loses.

[@adnanchowdhury9460]

so i get it Fannie and Freddie are creating Mortgage backed securities and selling them to investors/ now the Fed. But how do investors make money from MBS? and is MBS some kind of insurance to banks from FnF? and why would you call MBS an asset or perhaps a junk asset? thanks in advance if you answer my question.

[@austinsontv]

But wait. Did mortgage rates rise at a higher rate than what is normal for inflation in the past 10 years?

[@devbodaghe]

I really didnt like this example.

[@Edithhandle]

American socialism

[@theconsciousobserver6829]

Incoherent.