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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. Senior Editor Paddy Hirsch explains why.

About the author

Paddy Hirsch is a Senior Editor at Marketplace and the creator and host of the Marketplace Whiteboard. Follow Paddy on Twitter @paddyhirsch and on facebook at www.facebook.com/paddyhirsch101
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Hi Hareb,

The anolgies are used to helpy you understand the stories and not used as direct comparisons. The bank securitizes the Mortgages so they get the money from investors so they can immediately go out and issue more mortgages. Without securitization the'd have to wait 25+ years for a home owner to repay their mortgage before issuing another loan.

Just where was I so far? How great instructional complementary program you have online and I didn't even know about it though I have been listening to MarketPlace for years and years...

Here's some incredible work from Paddy!
These analogies are really helping people grasp the underlying concepts.

Hareb, u r really mistaking. u said "But do the banks HAVE TO sell their loans to Fannie/Freddie? No, they don't have to, they can just make money off the loans directly since they charge interest. That's a key difference"
What "interest" are u talking about? your monthly payments or what? or maybe u expect the banks to wait for 30yrs before they get their money back? without F&F i strongly believe YOU and ME will not be able to get a mortgage cos the banks have a VERY LIMITED RESOURCES in their vault, if they have any at all, to issue mortgages and keep it on their books. so what they do is simple: they issue mortgages, sell it off to F&F IMMEDIATELY, get the cash, make some profits from the transaction and issue more loans. AND THE CIRCLE CONTINUES. dnt forget F&F is a GSE (Government Sponsored Entity) so there pockets is has deep as the US government itself. and now that F&F have gone belly up the Federal Reserve has stepped in to buy and many home loans as possible so as to keep the circle going and importantly to keep interest rates low.
lots more stuff are happening behind the scene but i hope u understand my little explanation.

Yes, he's a talented story teller and knows how to draw, but I'd prefer less bells and whistles and less repetition; maybe others need it.

But what Paddy entirely skipped over is a key difference. A steelmaker must sell their steel to make money. But do the banks HAVE TO sell their loans to Fannie/Freddie? No, they don't have to, they can just make money off the loans directly since they charge interest. That's a key difference. now, I do have some understanding about why it's helpful (not necessary but helpful) to the banks to sell to F&F, but that needs to be explained and comparing them to a steel maker (who CANNOT make money from just the steel they have in their warehouse without selling it) with the banks (who CAN make money from their loans to people, without selling those loans to F&F..) and this is glossed over.

This glossing over would not have happened if there was less "infotainment" and more informing. People are falling over each other praising Paddy and as I say he is talented, but they seem to love the story and infotainment: boats, yachts, and now cars. But not only are the stories not necessary, they are leading to false analogies and glossed over points, as noted above. Use Paddy's considerable talents, yes, but in a less info-tainment sort of way: he could have drawn smiling cartoon characters and boxes and so on, of F&F, banks, etc, themselves, without any need for the false analogy pictures of "cars" and so on.

Paddy, please come teach at Georgetown Law!

Paddy, just want to say that these are fantastic videos - please keep them up.

Your videos are amazing, please never stop making them.

The program is wonderful and very instructional. But, it would very helpful to many of us, if you guys would implement Closed Caption to each show. THANK YOU Mr. Paddy Hirsch. You are a SUPERB instructor. I feel enlightened with your explanations.
Roberto Montoya-Ulloa

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