It states that these institutions purchased and guaranteed more low documentation, low verification and non standard mortgages in 2006 and 2007 that they had in the past. It also says that the companies increased their exposure to risks despite warnings and that roughly 33 % of the companies business involved buying or guaranteeing these risky mortgages, compared with 14% in 2005...
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It goes on to explain how the two organizations bundled individual mortgages into securities, guaranteed them against default and sold them to investors. They also bought mortgages from banks and held them in their own portfolios, allowing lenders to make more loans. When the credit market began to dissolve, both Fannie Mae and Freddie Mac weren’t able to secure loans or raise capital at sustainable prices resulting in cut backs on mortgage financing...
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Sub-prime crisis From a servicing standpoint, these loans have higher collection defaults and also lenders have to incur high costs in their recovery. Lenders charge higher interest rates to offset these anticipated higher costs...	4 / 890
Sub-Prime And Impact The infusion of capital prevents investors from a sizable loss. The financing is supposed to help stabilize the depreciating collateralized debt obligations of the fund, essential portfolio of debt...	3 / 627
Mortgage Loan Pari-Passu is a Latin term and means “Without partiality”. Fixed Rate Mortgage is a mortgage whereby the rate of interest is fixed for a specified period of loan or for the term of the loan itself...	3 / 835
Lending Markets It is therefore important that the secondary market be highly liquid. Secondary marketing is vital to an efficient and modern capital market. Fundamentally, secondary markets mesh the investor's preference for liquidity with the capital user's preference to be able to use the capital for an extended period of time...	3 / 673