Essay about Fannie Mae Case - 1377 Words

Fannie Mae case. Federal regulators noted a growing string of high profile scandals at major U.S. corporations in recent years. The number of fraud cases investigated by the Securities and Exchange Commission jumped 41 percent in the last three years (112 cases in 2001 compare to 79 cases investigated in 1998), resulting in tens of millions of dollars in fines to settle the charges. I have decided to take a closer look at Fannie May. This company operates in the residential mortgage finance industry. It facilitates the flow of mortgage capital to increase the availability of homeownership for low, moderate, and middle-income Americans. Its lender customers are part of the primary mortgage market, where mortgages are originated and†¦show more content†¦The effects on Fannie Mae, a highly politically connected company, could be enormous. The company holds over $1 trillion in assets, and purchases more mortgage loans than any other lender in the U.S. When the accounting errors first emerged Fannie Mae estimated that there would be an adjustment of about $9 billion in its reported earnings over the contested period. That number has since increased to over $11 billion but may increase again as further irregularities discovered with insurance related issues. No estimate of these additional potential revisions is currently available. On December 21, 2004, Franklin D. Raines stepped down as Chairman and Chief Executive Officer and J. Timothy Howard resigned as Chief Financial Officer. Raines departure, at age 55, was structured as an early retirement. Under his employment agreement and the terms of the Executive Pension Plan, Raines is entitled to receive 60 percent of his High-Three Total Compensation, which is his highest total compensation for three consecutive years during the last 10 years. Upon early retirement, this number is slightly reduced leaving him with estimated annual benefits of $1,085,462. Furthermore, the companys Stock Compensation Plan of 1993 allows all options to become immediately exercisable and fully vested upon early retirement. The 2003Show MoreRelatedAn Asset Price Bubble1286 Words   |  6 Pagesadvantage of the situation for benefiting in short run. 1.3 Fannie Mae and Freddie Mac Wallison and Pinto (2009) claimed that Fannie Mae and Freddie Mac have to take the responsibility for the lack of quality of mortgage (blemished credit, low or no down payments, negative amortization and the lack of documentation of income) that leads to the growth of the housing bubble. In 9 years (1994-2003), purchases of mortgages from Fannie and Freddie as a percentage of all mortgage originations increasedRead MoreKey Factors Affecting The Foreclosure Crisis1286 Words   |  6 Pagesprotected because of the credit default swap. The real estate market boomed beyond anything anyone had ever seen. And it fed itself; the more the market boomed, the more people wanted to buy homes and the more investors were willing to lend. A case in point: to remain relevant, FHA altered its own rules. FHA loans have always required a down payment and prohibited the seller from making that down payment on behalf of the buyer. But FHA altered their own rule by allowing the seller to make aRead MoreHow Do House Of Cards Because Caused The Crash?1354 Words   |  6 Pagesas a money bank, and not thinking twice of the equity they were loosing in the process, because they thought that the value would only go up, while their mortgages would decrease, and were blinded by the so called â€Å"American Dream†. Fannie Mae and Freddie Mac Fannie Mae and Freddie Mac, started in 1992, was a company started to subsidize LMI housing without appropriating any funds. In 1997, an urban report claimed that local lenders seemed more than happy to serve creditworthy low, moderate incomeRead MoreThe Crisis Of 2008 : Is It All The Feds Fault?1677 Words   |  7 Pagesin people having loan amounts that vastly exceeded the true value of their homes. Fannie Mae and Freddie Mac Fannie Mae and Freddie Mac, started in 1992, was a company started to subsidize LMI housing without appropriating any funds. After an urban report in 1997 found that local lenders seemed more than willing to serve creditworthy low to moderate income and minority applicants. Upon that alligation in 1997, Fannie and Freddie modified their systems, which led the way for vaste numbers of sub-primeRead MoreThe Subprime Mortgage Crisis Of 20081305 Words   |  6 Pages For many this was seen as a blessing; however, it would come with a cost. Under these new conditions, due to their â€Å"below average† credit rating, potential homeowners would now be labeled subprime and subjected to higher interest rates. In some cases, subprime borrowers also received adjustable mortgage rates, which during initial years worked in their favor because interest rates remained low. As years progressed and interest rates increased, homeowners would now face higher mortgage paymentsRead MoreThe Burst Of The Housing Bubble2886 Words   |  12 Pagesselling them to outside investors by guaranteeing the repayment of the principal and interest (Griffith, 2012). Fannie Mae and Freddie Mac are government-sponsored enterprises charged with providing liquidity to America’s mortgage finance system (Griffith, 2012). When issuing mortgages, the brokers knew that in the case of a default the loans were backed by securitization. Originally, Fannie Mae and Freddie Mac did mortgage pooling since they used stringent standards to ensure rep ayment to the investorsRead MoreThe Looming Of A Miracle Worker Essay1251 Words   |  6 PagesDevelopment (HUD) become a regulator over Fannie Mae and Freddie Mac, according to HUD’s history. As a regulator HUD could set desired goals for the two government sponsored enterprises (GSEs) to service low-income families, creating what they saw as a good intention. From there, it is questionable the decision to purposely make a sale on what is a subprime mortgage, this sense of ignorance was merely the first along the way. What developed from this was that now both Fannie and Freddie had to meant goals whereRead MoreHistory Is The Most Important Subject Of Education Essay2004 Words   |  9 Pageshave been as general as the flaws and shortcomings of human beings and as specific as the effects of Federal Reserve System policy on interest rates or a change in mortgage loan eligibility standards by the Federal National Mortgage Association (‘Fannie Mae’) or the Federa l Home loan Mortgage Corporation (‘Freddie Mac’). The housing market is greatly affected by interest rates and credit eligibility rules, but there is much more to the story than that.† The market was booming in the early 2000s.Read MoreEssay on Countrywide Financial Home Loans Failure1300 Words   |  6 Pageslobbyists in the House of Representatives to refrain the committee from passing a legislation pertaining to new sub-prime lending rules, which would have been unfavorable for the company. Even the legislation passed to initiate reform measures at Fannie Mae and Freddie Mac were influenced by Countrywides lobbyists (Zacks, 2012). Past of unethical practices investigated by SEC was the executive compensation for David Sambol and Angelo Mazilo. All the ethical misconduct and high-risk business practicesRead MoreThe Cornerstone Of The American Dream2183 Words   |  9 Pagessetbacks such as unemployment, divorce, medical emergencies, etc.(cite report) Essentially, those who acquire subprime loans are at a much higher risk of default due to the aforementioned setbacks reducing their ability to meet monthly payments. In the case of the housing market collapse, many subprime mortgage loans used a financial instrument called an adjustable-rate mortgage (ARM) meaning that the interest rate on the promissory note is not fixed, rather it is periodically adjusted to reflect the