Attached.

Running head: FINANCIAL INSTITUTIONS

Financial Institutions
Name
Institution

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FINANCIAL INSTITUTIONS

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Financial Institutions

1. Discuss federal government’s involvement in the secondary mortgage market,
specifically, the roles and functions of government agencies and GSEs in helping the
evolvement of the secondary market. Were there excessive risks taken by the GSEs?
Reforms are always occurring in the mortgage market, and the federal government plays
a role in ensuring that the conduction of business in these markets is efficient. The secondary,
mortgage market was failing, and the government played a role in ensuring that the regulations in
place were effective in creating a conducive market. The facilitation of the loans is regulated by
the federal as weaknesses were seen in the operation of the credit and this increased the costs for
the taxpayers. It necessitated ensuring that the problems that exist in the financial market are
addressed ass it is through this that the economy measures are implemented (Francis, United &
Santos, 2012). The government role in the case is the enactment of policies that ensured that the
consumers are protected from the exploitation in the market. The financial market problems were
the financing through debt and this shook the market as the demand for the houses was weak.
With the policies that there was the assurance that the market is protected and that people are not
exploited.
The government sponsored enterprises came into the picture to assist in the difficulties
that were faced in the market where the level of debt was high. The GSE’s agreed to enter into
the conservatorship that was set by the government to assist in the control of the debt in the
market. Controversies existed in the market to the role that the GSE played, and there was the
assumption that there were precipitating the crisis that already existed in the market. Debates
were present that looked at the phasing out of the GSE’s but the same was not enhanced as the
aim of the creation of the enterprises was to ensure that there is control in the mortgage market.
The GSE program was to make sure that people became home owners and especially those that
earned low incomes. The government considered that there are benefits that the society gains
when people own homes (Mitchell, 2015). The support that the government gave the enterprises
helped in lowering the borrowing cost, and the exemption of taxes and the aim was to ensure that
there is the promotion of housing in the market. The risks that existed in the secondary market
were many, and this was due to the increased risks of borrowing and with the participation of the
GSE and the involvement of the government the risks were reduced, and people could afford to
own houses.

FINANCIAL INSTITUTIONS

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References

Francis, A. T., United, S., & Santos, D. P. (2012). Mortgage Reform and the Federal Role in the
Secondary Mortgage Market. Hauppauge, N.Y.: Nova Science Publishers, Inc.
Mitchell, S. G. (2015). Housing Finance and the Secondary Mortgage Market: Alternatives for
Change. New York: Nova Science Publishers, Inc.
2. Despite the criticism against mortgage-backed securities, MBSs provide benefits to
investors. Discuss its role in portfolio management as a potential diversification tool.
Mortgage-backed securities is a large sector that in the market of the fixed market where
the investors are offered an array of benefits as they are in a position to diversify their
investment. The MBS is known to provide different opportunities for the investors, and it gets
support from the homes sector in the United States where the majority of the homes conform to
the loans that are issued by the agencies in mortgages. There is an attractive yield that is given to
the investors, and this is critical in opening doors for more investments in the sector. The MBS is
important in the diversification and the management of the investments where the risks of the
assets that are given are minimized, and this creates an environment that is conducive for the
investments. The attractiveness that MBS offers ensures that the opportunities that are provided
on the market are fixed portfolios where the trading in the market is governed by the regulation
and the constraining factors that exist in the market (Horton, 2013). The constraints are known to
create opportunities for the investors where their returns are increased, and this offers increased
investors returns. The potential that the MBS offers make it be attractive to the investors as the
allocations that are made are substantial. There is evidence of a yield that is incremental about
other investments where the risks ...