Fannie Mae Case: Federal National Mortgage Association

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Bad Accounting 101: Fannie Mae
Background on Fannie Mae Fannie Mae is the common name of the Federal National Mortgage Association, also abbreviated as FNMA. It is one of two of America’s largest mortgage companies, along with Freddie Mac (Federal Home Loan Mortgage Corporation – FHLMC).1 Fannie Mae guarantees and purchases loans from mortgage lenders to help ensure families can buy new homes or refinance.2 Fannie Mae was founded in 1938 as part of Franklin Delano Roosevelt’s New Deal during the Great Depression. As borrowers began to default on mortgages during the country’s major downturn the government, led by Franklin D. Roosevelt and Congress, created Fannie Mae in order to buy the mortgages from lenders so as to free up the bank’s
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Department of the Treasury.3
The short term goal of the conservatorship is to stabilize Fannie and Freddie. It would have taken an act of Congress in order to nationalize Fannie/Freddie, so instead the conservatorship was creatively negotiated by the Treasury in a $188 billion bailout. In an article published on September 9, 2013 for CNBC, five years after the conservatorship was put into place, Fannie Mae (and Freddie) are making billions of dollars in profit again, which goes straight to the Treasury and back into the U.S. government.12
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It is one of two of America’s largest mortgage companies, along with Freddie Mac (Federal Home Loan Mortgage Corporation – FHLMC).1 Fannie Mae guarantees and purchases loans from mortgage lenders to help ensure families can buy new homes or refinance.2 Fannie Mae was founded in 1938 as part of Franklin Delano Roosevelt’s New Deal during the Great Depression. As borrowers began to default on mortgages during the country’s major downturn the government, led by Franklin D. Roosevelt and Congress, created Fannie Mae in order to buy the mortgages from lenders so as to free up the bank’s capital. Fannie Mae grew quickly over the years as it paved the way for banks to be able to offer loans to otherwise non-creditworthy borrowers. Then in 1968, as the government’s budget was pressed by the Vietnam War, President Lyndon Johnson removed Fannie’s debt portfolio from the government balance sheet and the government-sponsored enterprise was converted into a publicly traded company. Freddie Mac was then created primarily to compete with Fannie Mae so as to prevent a

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