Considering the reading materials as well as the notes covered in class lecture, explain "financially$/$economically$",$ why were loan officers and the board of directors of local, smaller banks very pleased with the creation $($and continuation$)$ of TheFederal National Mortgage Association $($FNMA$),$ commonly known as Fannie Mae and The Federal Home Loan Mortgage Corporation $($FHLMC$),$ known as Freddie Mac?

Question $27$ options:

$1)$

Trick question: They were NOT pleased because Freddie and Fannie started taking away their lending businesses and the smaller banks struggled financially afterwards.

$2)$

They were pleased because, they $($the smaller banks$)$ could now offer more risky mortgages to high$-$risk consumers $($i$.$e$.$ NINJAs$)$ because there was a good chance that Freddie or Fannie would buy out the high$-$risk mortgage and the bank would not have to worry about repayment of the debt.

$3)$

The smaller banks were pleased when Freddie and Fannie bought out$/$paid off their riskier mortgages because it allowed them $($the smaller banks$)$ to use those "paid off" funds from Freddie and Fannie and invest those dollars in more risky investments themselves such as Mortgage Backed Securities.

$4)$

Only $2$ and $3$ are correct

$5)$

$1,2$ and $3$ are all correct.