Secondary Mortgage Market Enhancement Act - SMMEA


DEFINITION of 'Secondary Mortgage Market Enhancement Act - SMMEA'

An act passed in the United States in 1984 to meet growing demand for mortgage credit that could not be wholly met by existing federal agencies. The SMMEA allowed federally-chartered and regulated financial institutions to invest in mortgage-backed securities, and also overrode state investment laws to enable state-chartered and regulated institutions to invest in these securities. The act made a major contribution to the exceptional growth of the residential mortgage market in subsequent decades.

BREAKING DOWN 'Secondary Mortgage Market Enhancement Act - SMMEA'

As a consequence of SMMEA, the secondary mortgage market expanded tremendously. But this exponential growth also contributed to the collapse in the U.S. housing market starting in 2007. This collapse was precipitated by a confluence of factors including securitized products (such as mortgage-backed securities) receiving higher credit ratings from rating agencies than was warranted by their holdings, lax lending standards and a surge in subprime borrowing.

  1. Subprime Meltdown

    The sharp increase in high-risk mortgages that went into default ...
  2. Subprime Lender

    A type of lender that specializes in lending to borrowers with ...
  3. Securitization

    The process through which an issuer creates a financial instrument ...
  4. Ratings Service

    A company, such as Moody's or Standard & Poor's, that rates ...
  5. Mortgage-Backed Security (MBS)

    A type of asset-backed security that is secured by a mortgage ...
  6. Put-Call Parity

    A principle that defines the relationship between the price of ...
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  1. What is a subprime mortgage?

    A subprime mortgage is a type of loan granted to individuals with poor credit histories (often below 600), who, as a result ... Read Full Answer >>
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    In economics, utility function is an important concept that measures preferences over a set of goods and services. Utility ... Read Full Answer >>
  3. How can I use a regression to see the correlation between prices and interest rates?

    In statistics, regression analysis is a widely used technique to uncover relationships among variables and determine whether ... Read Full Answer >>
  4. What is the difference between "closed end credit" and a "line of credit?"

    Depending on the need, an individual or business may take out a form of credit that is either open- or closed-ended. While ... Read Full Answer >>
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