The mortgage banking industry is made up of banks that specialize in creating and servicing mortgage loans directly to consumers, and secondary banks that buy or secure these mortgages. There are over 6,000 firms that make up the American mortgage banking industry.
The Secondary Mortgage Market
In the mortgage banking industry, mortgage banks often sell their mortgages to a larger company on the secondary mortgage market. The mortgage is thereby secured by the secondary company. The two largest buyers of secondary mortgages are the Federal National Mortgage Association, better known as Fannie Mae, and the Federal Home Loan Mortgage Corporation, better known as Freddie Mac.
Investigations of the Mortgage Banking Industry
Since the early 2000s the mortgage banking industry, and especially the secondary mortgage market, has been under investigation several times. Suspicious hearings were held in 2000 based on implications of malpractice at Fannie Mae. In 2004, Fannie Mae was under investigation for large accounting errors, and in 2006 executives at both Fannie Mae and Freddie Mac were accused of tampering with revenues to maximize personal income.
The Scandal of 2008 and Looking Forward
In July of 2008 Fannie Mae and Freddie Mac, formerly thought of as too big to fail, needed help. On September 7, 2008 the U.S. government took full control of both companies and replaced their respective CEOs. Looking towards the future, the government will continue to further regulate both corporations while the liabilities suffered by Fannie Mae and Freddie Mac will cost American taxpayers tens of billions of dollars.