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.

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