Let’s say I owe you $100. I’ve agreed to pay you back $10 a month for ten months. But I actually only have enough cash on hand to pay you $5 per month. If I pay you back $10 per month, I’m going to end up in the red and won’t be able to pay you anything. So, in this situation, would you lend me $5 a month to enable me to pay you the full $10 per month? Probably not, right? You’d say “OK, pay me back $5 per month and we’ll extend the term, so you pay me back over 20 months.” Either that, or you’d ask for a lien (say on my car). Or you would charge me interest, so that my $5 per month ended up making you a little money even though I was taking longer to pay it back. Or, time being money, you’d send a couple of guys over to explain your point of view in a way that I would understand. And I would find the money to pay you back the $10 every month.
Now, take that story and imagine that you’re the government, and I’m Fannie Mae and Freddie Mac, the quasi-private home mortgage lenders. (more…)
Topics:
Dept. of the Treasury,
Fannie Mae & Freddie Mac,
Federal Housing Administration,
Free Agency,
Office of Federal Housing Enterprise Oversight
Tags:
Fannie Mae,
FHEO,
Freddie Mac,
government-sponsored enterprises,
GSE,
GSEs,
office of federal housing enterprise oversight,
preferred share dividends