Mortgage Backed Securities: United States and Ireland

The United States government wants mortgages readily available for people in the market for a new home. In order for mortgages to be available, banks would have to have enough capital to make such loans. In effort to support banks, the United States Congress has federal mortgage organizations to monitor and support the mortgage market. Three federal mortgage organizations that exist are Fannie Mae, Freddie Mac and Ginnie Mae. While these may sound like foolish nicknames for government-created organizations, these organizations are vital for monitoring mortgage banks in the United States. If too much capital is readily available from banks to the public, these government organizations buy mortgages from banks. Upon the organizations’ purchase from the bank, the Federal National Mortgage Association (Fannie Mae), for example, can hold these mortgages until a time of need or sell securities, backed by several of these mortgages, to investors willing to invest in real estate. The capital from the investors’ mortgage-backed securities purchase allows for more loans for new homebuyers, while the investors await return through the new homebuyers’ mortgage repayments. It is these mortgage backed securities that helps determine the U.S. Federal Reserve’s mortgage rate in the United States. However, such monitoring and stabilizing of the mortgage market allows for more people to fulfill their goal of purchasing homes. 

In Ireland, while there are no federal mortgage organizations like that in the United States, Finance Ireland provided a similar opportunity to that of U.S. mortgage organizations just last year. Finance Ireland offered the sale of 290 million euros worth of mortgage backed securities in order to create more mortgage loans to lend to new homebuyers in Ireland. People interested in investing in Ireland’s real estate would purchase the mortgage backed securities. These investors would similarly be paid through the homebuyers repayment schedule. However, it should be noted that, while creating more loans, this system did fail the United States in 2008 when weaker or subprime mortgages were added into the mortgage backed securities to fulfill the high demand of United States investors who wanted to invest in real estate. Regardless, it is rather reassuring, in economies like the United States and Ireland that are largely based upon consumer sentiment, that there are government organizations and companies that are acting to stabilize the mortgage markets in order to allow home buyers to find their dream homes.



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