Fannie Mae-No Politics (FNMA)

[Donotunderstand]

contrarian

the concept of insurance - is pooling the risk

so a small fee is put on each mortgage - unless you pool those fees and risks and put a MISTAKE of undercharging on some one company there is no safety for the lenders

oops
I just described F and F

With Sallie Mae - towards the end before BO killed it - they collected such fee but took none of the risk - zero - and indeed were not needed

However F and F - collects the fees - pools the income and the risk and pays all the losses - etc.

The GOV which would have to reinsure at some level - post original private sector loss - can deal with one entity and not 10,000

Note - in theory - the interest rate being charged covers the cost of the risk of failure to pay

F and F then charge an insurance charge above that - in essence insuring against a mistake in the calculation of the interest rate

That approach has problems where the interest rate is not high enough for the risk (some of the lower quality loans). That is why the current process includes a lot more disclosure of a lot more data by the banks selling mortgages to F and F ..... and why there is a 20% down requirement - and why some put back of initial risk onto the lender is wise