Hacker News Reader

Comment by ChrisLomont | Hacker News Reader

>Both Fannie and Freddie buy mortgages

Yes, I said as much. The OP claimed they guaranteed mortgages, which they do not.

I'm decently aware of the MBS market - I developed MBS pricing algorithms in the late 90s/early 00s for putting houses in tranches after a friend at a mortgage company asked for help with algorithms. Turns out the problem was NP-hard (a lattice based linear programming problem if I recall), but good heuristics from the literature and some special sauce outperformed their current (at that time) pricing.

Around the time the whole market blew up I was considering going to hedge funds, and was working out details of how all the math, science, and computer algos work to prepare for interviewing. After the market crash, I moved on more into scientific and R&D computing. But I still read papers in the area out of curiosity.

But the fact is the market is not "guaranteed" in any sense - which is likely good as 2008 showed.

View on HN

I don't think this is true.

> At Fannie Mae, we provide liquidity to the single-family market by purchasing and guaranteeing mortgage loans made by lenders and issuing debt securities and mortgage-backed securities that attract global investors to finance U.S. housing.

https://www.fanniemae.com/about-us/what-we-do#:~:text=At%20F....

>I don't think this is true.

They do guarantee some loans, as I wrote above. The marketing blurb you copies cleverly does not state they will guarantee any mortgage loan.

If they did, the housing crisis would not have been such a crisis - the crisis happened when so many investors realized the loans they bought could crash and cause them massive losses - precisely because FM does NOT guarantee all loans.

They guarantee certain loans (conforming loans), and charge a fee to investors for this when they purchase MBS from Fannie Mae. Conforming loans make up under 40% of all mortgage loans. Of all conforming loans made, Freddie and Fannie end up purchasing about 60% of those.

It may be that they stopped buying loans they deem too risky, but that didn't use to be the case.

Well, what you said is this.

> FM does not guarantee most mortgages, only certain govt types like FHA and VA loans, which the govt decided to back in order to help low income people get loans (otherwise the rates would be even higher for them).

And this.

> The OP claimed they guaranteed mortgages, which they do not.

So it read to me like they don't guarantee mortgages save for the "special" mortgages for underserved groups (FHA/VA). In fact, they do. They guarantee all the loans they buy, as far as I know. They only buy conforming loans. Conforming loans are another way of saying, loans that they will buy (and guarantee). Of course they don't guarantee loans they don't buy.

I used to work at a mortgage originator, and we sold the majority of our loans to Fannie and Freddie.

> Of all conforming loans made, Freddie and Fannie end up purchasing about 60% of those.

This is true, because private investors pay more than Freddie and Fannie for conforming loans.

Sorry for any confusion - what I wrote was "FM does not guarantee most mortgages" in reply to the OP claiming FM guaranteeing mortgages is subsidizing the housing market.

(And I ignored that FM is not the Federal Govt for now...)

From the stats of conforming mortgages being 40% of mortgages and the FM only buying 60% of those, FM is at most guaranteeing (to investors, for a fee) around 24% of mortgages. That's well under 51%, right?

So FM not guaranteeing most mortgages is true, and it's not even close.

Reply on news.ycombinator.com