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How has the federal government”s intervention over the past several decades changed the structure and operations...

How has the federal government”s intervention over the past several decades changed the structure and operations of the home mortgage markert? for what reasons has all of this been done?
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Answer #1

Federal govt. has to intervene generally in two cases: i. When there is inflationary pressures in an economy

ii. When there is recessionary gap in an economy.

US has a Freddie Mac created in 1970 to expand the secondary market for mortgages in the US. The secondary market makes it possible that more money is available for lending as banks can leverage there existing loans to other willing financial company.

This process works fine when there is consumer confidence and loans given are prime( with proper and enough mortgage). However, in 2008 due to sub prime loans crisis many financial companies went down.

Federal govt. wanted to increase money supply available for lending as housing is considered to be a sector that can drive economy positively.

This move has yielded positive results but has made securities more riskier.

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