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Fannie Mae

In: Business and Management

Submitted By ssavett
Words 839
Pages 4
FIN624
Final Paper

Fannie Mae, also known as Federal National Mortgage Association was established in 1938 by amendments to the National Housing Act to provide local banks with federal money to finance home mortgages. This was an attempt to raise levels of home ownership and make affordable housing more available by creating a secondary market. Fannie Mae was authorized to buy Federal Housing Administration insured mortgages, replenishing the supply of lendable funds. In 1944 Fannie Mae was authorized to purchase loans guaranteed by the Veterans Administration, and in 1954 they become a mixed ownership corporation owned partly by private stockholders. In 1970 Fannie Mae transitioned from mixed ownership to private organization and was authorized to purchase conventional mortgages. Through the 80’s and 90’s Fannie Mae remained profitable through the use of adjustable rate mortgages and mortgage backed securities. In the late 1990’s and early 2000’s institutions in the primary mortgage market pressured Fannie Mae to ease credit requirements on the mortgages it was willing to purchase, enabling them to make loans to subprime borrowers. As housing prices dropped nationwide and foreclosures increased, Fannie Mae suffered large losses on various investments in their portfolio, such as sub-prime mortgages (loans made to borrowers with poorer-than average credit) and “private label” MBS’s (securities issued and insured by private companies without government backing). Fannie Mae also faced increased uncertainty about the scale of the decline in housing prices and increases in unemployment and in turn the size of credit losses on their outstanding guarantees (which in September 2008 totaled $3.8 trillion). These factors impaired Fannie Mae’s ability to issue low-cost debt to fund their mortgage purchases, and there was doubt if they had enough capital to cover…...

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