Economics

We learn in Econ 101 that risk is directly related to return. When the mortgage loan giant Fannie Mae was started in 1938 it had a built in advantage over other mortgage lenders. While it was not a government agency it was a Government Sponsored Agency (GSA) and that meant that if things went bad the government would come to their aid. Investors were aware of this and thus were willing to receive a lower rate for the safety of their investment….risk/return. While this difference was only a quarter to a half percent it was a leg up. Everyone knows how much a half percent can make on a thirty year loan. In the 60’s and 70’s rumors spread about how Fanny was using its interest advantage to promote its own business to the detriment of the private market. Fanny would always respond to threats to remove their quasi government status by bragging about how they helped many people get homes. In the 80’s the precursor to the mortgage crisis was born. Some small local mortgage companies realized there was a market for people with bad credit