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A government sponsored enterprise, chartered to facilitate the secondary loan market, undergoes a restructuring that entails a privatization and seeks to broaden its mission to the potential detriment of credit unions, banks and other business partners.
Sounds like the criticism being leveled at Freddie Mac these days by competing financial companies worried the secondary mortgage giant is creeping into their businesses.
But it's not. It's USA Education, Inc., the secondary market- maker for student loans better known as Sallie Mae, which has recently amassed unprecedented clout in this niche market, and in the process edged out many credit unions, banks and other traditional business partners along the way.
Since Sallie Mae underwent a corporate restructuring three years ago, it has broadened its business to include not only the buying and securitizing of loans on the secondary market, but also originating loans. This year, Sallie Mae expects to originate as much as $12 billion in student loans-a startling 50% of the non- federal government share of the market. In comparison, the biggest mortgage originators, J.P. Morgan Chase and Wells Fargo, hold no more than 7% of the home loan market.
Like its mortgage-market siblings Freddie Mac and Fannie Mae, Sallie Mae was chartered by the federal government, as the Student Loan Marketing Association to create a secondary market for student loans. And like the two secondary mortgage giants, Sallie underwent a corporate restructuring, which included a privatization. However, unlike Freddie and Fannie, which have maintained their government charter, Sallie's restructuring, which will entail the eventual shedding of the government charter, has enabled it to move into loan originations, an area never contemplated by the company's 1972 chartering.
The vast expansion of Sallie into the primary market for student loans comes as criticism is mounting against Freddie Mac and Fannie Mae for their potential to compete...