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Fannie Mae
As you will probably know, over the last few weeks, Fannie Mae and Freddie Mac have gone virtually bankrupt due to their unsound lending practices. They have now been effectively nationalized by the US government. By comparison, someone following the principles we outline on this web site will have safe loans. Perhaps there will be some foreclosures and loss of interest. But if you loan at 65% Loan to Value, the property has to go down by 30% for you to lose your principal.
You can also invest indirectly in mortgages by buying shares in Fannie Mae on the New York Stock Exchange. You are not actually investing directly in mortgages, you are buying shares in a company that invests in mortgages. But the yield to you is much less. Just 2.639% as at February 17, 2004. For the current yield click here. Fannie Mae (and a similar company, Freddie Mac) are wholesalers for the mortgage industry. They borrow money from investors to buy mortgages from lenders. They also repackage mortgages into securities for sale to investors, adding their own guarantee that investors will receive the promised principal and interest. They charge lenders a fee for that service.
They have become two of the nation's largest financial institutions, with combined profits of $12.8 billion last year. Through their decisions as to what kinds of mortgages they will purchase or securitize, they exert enormous influence on the mortgage industry and the borrowing options available to consumers.
As their mortgage documents are so well known, we recommend you use the identical documents for mortgages you originate, see later.
Investing in private mortgages is more hands-on than just giving your money to a stockbroker. But the yield can be far greater!
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