Fannie Mae, Freddie Mac, and the secondary mortgage market : lessons from the past and recommendations for the future.
"When making policy recommendations for Fannie Mae, Freddie Mac, and the secondary mortgage market, it is necessary to understand the past of Fannie and Freddie. Therefore, this paper will look at history of the government-sponsored enterprises (GSEs) from their establishment through the recent financial crisis in the first two chapters. The third chapter will evaluate the proposals for reforming the system of mortgage finance in America and culminate in a policy recommendation. An econometric analysis of the affects of selected events on Fannie Mae and Freddie Mac's stock price will make up the final chapter of the paper. Given the unique characteristics of the GSEs, which are explained in detail in the first two chapters, it is worthwhile to examine the financial market's reaction to both negative and positive events with respect to Fannie and Freddie. This will be accomplished through an event study in Chapter 4 that spans from the early 2000s till July 2008, immediately prior to the GSEs entry into the conservatorship. The conclusion reached in this paper is that the secondary mortgage market, the system of mortgage finance, and the macroeconomy can do without Fannie Mae and Freddie Mac in the future because the costs of their continued existence outweigh the benefits."
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