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Secondary Mortgage Market Enhancement Act (SMMEA): What It Is, How It Works

By

澳洲幸运5官方开奖结果体彩网:Julia Kagan

Updated February 15, 2025

Reviewed by

Doretha Clemon

Fact checked by

Skylar Clarine

What Is the Secondary Mortgage Market Enhancement Act (SMMEA)𒆙?

The Secondary Mortgage Market Enhancement Act (SMMEA) is an act passed in the United States in 1984 to meet a growing demand for mortgage credit that existing federal agencies could not otherwise meet. The SMMEA allowed federally chartered and regulated financial institutions to invest in 澳洲幸运5官方开奖结果体彩网:mortgage-backed securities (MBS). It also overrode state investment laws to enable state-chartered and -regulated 澳洲幸运5官方开奖结果体彩网:institutions to invest in these securities.

The act made a major contribution to the exceptional growth of the residential mortgage market in subsequent decades. In part, the result of the SMMEA and a significant increase in mortgage-backed securities, which factored prominently in the 澳洲幸运5官方开奖结果体彩网:2008 financial crisis.

Key Takeaways

The Secondary Mortgage Market Enhancement Act (SMMEA) overrode state laws to allow federal institutions to invest in mortgage-backed securities.
The act offered homebuyers more financing options and loan types.
The act passed in 1984 and contributed to mortgage market growth in the following decades.
The SMMEA was a contributing factor in the housing market crash of 2008.

How the Secondary Mortgage Market Enhancementౠ Act (SMMEA) Works

The Secondary Mortgage Market Enhancement Act (SMMEA) was created in response to concerns about the future of the housing industry. One of the principles behind it is that private 澳洲幸运5官方开奖结果体彩网:mortgage-backed securities should not compete with government mortgage-backed securities. Instead, they should compete with other private investments, such as 澳洲幸运5官方开奖结果体彩网:mutual funds.

The SMMEA succeeded in strengthening the secondary mortgage market. As mortgage-backed securities became widely available, they attracted more and more investors. Since the act overrode state laws, it allowed investment even in states with statutory limitations on mortgage-backed securities. This investment growth resulted in a larger pool of money available for homebuyers. It also gave homebuyers a greater variety of mortgage loan options. More Americans were able to purchase homes as a result of the SMMEA.

The Secondary Mortgage Market Enha🦋ncement Act (SMMEA) and theꦛ 2007 Housing Market Crisis

The SMMEA increased the use of mortgage-backed securities, which played a role in the collapse of the U.S. housing market starting in 2007. However, the collapse was precipitated by a confluence of factors, including mortgage-backed securities receiving higher credit ratings from rating agencies than was warranted by their holdings.

Mortgage-backed securities are created when a 澳洲幸运5官方开奖结果体彩网:mortgage lender sells mortgages to a pool sponsor, who then assigns them to a trustee. Investors buy certificates and receive payments generated by the 澳洲幸运5官方开奖结果体彩网:mortgage pool. The initial lender continues to service the pool's underlying mortgages and collects monthly payments. The trustee pays a service fee to the lender in return for the proceeds, which then get distributed to investors.

Before the 2007 collapse, many mortgage-backed securities were pooled with lower-quality subprime mortgages. Rating institutions often gave these relatively risky pools high ratings, encouraging high investment levels. At the same time, lenders were offering loans to unqualified borrowers. Many borrowers ended up defaulting. The defaults eventually resulted in the collapse of the s🌞econdary mortgage market, which had a ripple effect on t♕he overall economy.

Warning

Mortgage lending discrimination is illegal. 澳洲幸运5官方开奖结果体彩网:If you think you’澳洲幸运5官方开奖结果体彩网:ve been discriminated against based on race, religion, sex, marital status, use of public assistance, national origin, disability, or age, there are steps you can take. One such step is to file a report, either to the or the .

What Are Mortgage-Backed Securities?

They're a type of bond investment. Specifically, they're shares of mortgages that have been bundled and sold to investors. Mortgage-backed securities are largely held by banks, the Federal Reserve, and the U.S. Treasury, although money managers and investors also hold a significant share.

What Is the Secondary Market for Mortgages?

The secondary market is where mortgage lenders buy and sell mortgages they've originated to investors. This is different from the primary market, where homebuyers find lenders, 澳洲幸运5官方开奖结果体彩网:properties, choose finan♏cing products,🔜 and make down payments.

Are Mortgage-Backed Securities Risky?

If purchasing mortgage-backed securities from a government-sponsored entity, the risk is minimal. But, if the market weakens and borrowers stop making prepayments on their mortgages (or pay off⛦ their mortgages early), investors could lose out.

The Bottom Line

The Secondary Mortgage Market Enhancement Act (SMMEA) gave homebuyers more financing options and strengthened the secondary mortgage market by making it easier to purchase mortgage-backed securities. While this helped🐲 the secondary mortgage market grow, the weakened regulations are said to have contributed to the൩ subprime mortgage market that collapsed the economy in 2008.

Article Sources

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U.S. Government Publishing Office. "." Sec. 106, Pages 1691–1692.
Boston University Law Review. "." Pages 1919–1922.
Fordham Urban Law Journal. ".” Page 690.
National Association of Insurance Commissioners. "." Select "Read Full-Text." Pages 108–109.
University of Minnesota Law School, Scholarship Repository. "" Page 585.
U.S. Securities and Exchange Commission. "."
Federal Trade Commission Consumer Advice. "."

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