Federal National Mortgage Association

• Author: Jeffrey Lehman, Shirelle Phelps

Page 350

The Federal National Mortgage Association (known colloquially as Fannie Mae) is the largest U.S. corporation. With an overall value of nearly $1 trillion, the federally chartered Fannie Mae holds a unique place in the national mortgage market. Established by federal law in 1934, it was originally a NEW DEAL program. Since the 1970s, it has been a privately owned, for-profit corporation that is regulated and overseen by the federal government. Its chief purpose is to buy federally guaranteed home mortgages on the secondary market, thus freeing lending institutions to make more funds available for new mortgages for lowto middle-income home buyers. Tighter federal regulation began in the early 1990s, even as critics in Washington, D.C., argued that Fannie Mae should be completely privatized.

A broad federal response to the Great Depression gave rise to Fannie Mae. In the 1930s, the national housing market was devastated when a tight supply of money, coupled with a failure of banks, made mortgage financing extremely difficult to secure. Congress responded first in 1934 by creating the Federal Housing Administration (FHA), a body charged with stabilizing the mortgage market by insuring home loans (National Housing Act of 1934, subch. II [12 U.S.C.A. §§ 1707?1715z-11 (1980)]). This measure was not enough to salvage the mortgage market, however. In 1935, lawmakers created the Reconstruction Finance Corporation (15 U.S.C.A. § 601 [1983], repealed by REORGANIZATION PLAN of 1957 No. 1 [5 U.S.C.A. § 903 note (1977)]), and in 1938, they added a subsidiary, Fannie Mae (Federal National Mortgage Association Charter Act [12 U.S.C.A. §§ 1716?1723h (1980)]). Fannie Mae's federal charter required it to buy FHA-insured loans from mortgage lenders, thus increasing the supply of mortgage funds available for lending.

Fannie Mae played a major role in the post?World War II boom years in housing. Its portfolio grew after it was authorized to purchase VETERANS ADMINISTRATION (VA) loans in addition to FHA loans, a measure that fueled an enormous expansion of housing in the late 1940s and 1950s. In 1954, the federal government began issuing stock in Fannie Mae as part of a plan to share responsibility for the corporation's financial health with lending institutions. It issued preferred stock to the TREASURY DEPARTMENT and nonvoting common stock to mortgage lenders. For the latter, purchase of stock became a...