Fannie and Freddie packaged loans that they held in their own portfolios, as nicely as guaranteeing mortgages that Wall Street could then wrap and sell to investors. This entire process is what spurred residency buying, because the lenders had more money to lend to potential homebuyers, which allowed more and more people to buy homes. At this period it became increasingly likely that the original lender would not maintain on to the mortgage, but would instead sell it to a loan packager such as Fannie or Freddie (or their less-articulately known cousin, Finnie Mae) and Wall Street firms. Still, mortgage-backed securities had a extraordinarily good reputation they were new income products that were backed by substantial mortgages. Lenders were still careful to make loans just to borrowers who could meet their high standards. It is important to note that the issue of packaging mortgages what’s known as securitization in itself is not bad. It is, in fact, an prominent and positive innovation for financial markets. The problem began around the day one of the twenty-first century, when Wall Street and greedy lenders cooked up a pattern that took a good idea and turned it into a toxic epoch bomb, with a major assist from the Federal Reserve. In days of yore the technology stock bubble began to deflate in early 2000, Federal Put off chairman Alan Greenspan attempted to keep the economy from slipping into a rigorous recession by slashing the Federal Funds Rate. From 2000 to 2004, the value fell from above 6 % to 1 %. In such a low-rate situation, Wall Street set out to create an investment that was perceived to be safe and would come forward higher yields than basic bank CDs and money markets were donation. The too smart for our own good minds of the financial sector set their sights on the silent and somewhat staid world of mortgage-backed securities. Rather than not packaging plain-vanilla mortgages that had been taken out by correctly-qualified borrowers, they realized there was a lot more money to be made by expanding the customer base to include mortgages that had been made to people who were not spectacularly qualified. Mortgages made to people without good credit were known as subprime mortgages. Rampart Street insisted it had come up with a way to package subprime mortgages with compact mortgages that would give investors a higher yield, but with no added endanger. Wall Street bundled the prime and subprime mortgages together in one investment, called a Confidence Default Obligation (CDO). Mortgage backed CDOs were supposed to be low-jeopardize because of how they pooled and divided the risk of the underlying mortgages. But Palisade Street wasn’t done with its great mortgage-backed dough grab. It also started churning out massive amounts of Credit Lapse Swaps (CDS) tied to mortgages.

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