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Will fannie Mae stock recover? i think so. Vision statement

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tutt1126   Saturday, 05/26/18 10:25:07 PM
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Will fannie Mae stock recover?
i think so.

Vision statement for Fannie Mae?

Fannie Mae is working to support the economic recovery by helpingto build a sustainable finance system. They are present in order toprovide large-scale access to affordable mortgage credit in allcommunities across the country at all times so people can buy,refinance, or rent a home,

What is the vision statement of Fannie Mae?
to exploit technical innovations for the benefit of AT&T andits customers by implementing next-generation technologies andnetwork advancements in AT&T's services and operations.

How does Fannie Mae make money?

I don't know exactly, but through the information that I obtained and my understanding I think it goes as follows:. There are five players in the transaction:. 1) borrower (home buyer) 2) lender ( let's say local bank) 3) Fannie Mae 4) Government 5) Investor ( say insurance company). - borrower buys a house and borrows money from the local bank at say 6.25% (your average low interest rate). - Fannie Mae buys this loan from the bank and pays the bank .25% servicing fee for the life of the loan. So bank collects the money from the borrower, remits the payments to the FM. So bank got its money back and can make more loans, plus it has .25% revenue for the life of the loan. The bank is happy.. - So FM now receives his 6.25% from the borrower, but pays the bank .25% of it, so it actually is only getting 6.00%. The thing is that FM has a line of credit with the US Treasury, so it can borrow very cheaply, say at 3%. So it can pocket the difference.. - The primary role of FM (mandated by the US government) is to create a secondary market for those mortages, meaning: it has to take for e.g. 50 of $200,000 mortgages and make a $10,000,000 bond out of them and sell it to insurance company (e.g. AIG) at 4.5%. AIG will be happy to receive 4.5%. It is rather low, but the bond is backed by FM, which is backed by the government. The perceived risk is low and we know that low risk generates low returns, but it is safe.. - So insurance company is happy to receive 4.5% on its safe investment. FM is happy to pay 4.5% to the insurance company, because it is receiving 6% (6.25-.25) from the borrower and it only has to pay the government back 3% and can borrow more if needed.. Problem: If the borrower does not pay (and remember FM is only allowed to buy conventional loans - no adjustable rate, interest only and other creative crap) due to regular economic hardships, FM has to come with cash to service that debt to investors. Well, as of 7/11/2008 the government says that FM so far has enough cash to do so.

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