The Collapse of Fannie Mae and Freddie Mac

Topics: Fannie Mae, Stock market, Federal government of the United States Pages: 2 (439 words) Published: November 24, 2008


1. Fannie Mae was started in 1938 by President Franklin Roosevelt. He wanted to create a system or a new deal which would benefit people who didn’t have homes. Fannie Mae is the nickname of what is known as the federal National Mortgage Association, and Freddie Mac is the nickname for Federal Home Mortgage Corporation.

2. The great depression was the major reason for such a system to be put in place simply because private lenders weren’t investing in the home loans because of the stock market crash.

3. Both these two companies were privately owned and they sold shares to the public. Apart from them being privately owned these companies were and are still financially protected by the Federal government.

4. Through this protection by the Federal government, these companies had access to a line of credit through the U.S treasury.

5. Fannie Mae was also exempted from the state and local income taxes and also it was exempted from the Securities and the Exchange Commission oversight.

6. Fannie Mae had the ability to borrow money from foreign investors at low interest rates and then it would lend money to local banks, so that local banks would provide mortgages to homebuyers at low interest rates and low mortgage monthly premiums and low down payments.

7. Because of the Vietnam War (financial problems resulted from it), Fannie Mae was removed from the National budget and was operating as Government Sponsored Enterprise (GSE).

8. In 1970, Freddie Mac was introduced in order to stop further monopolization of the mortgage market. Freddie Mac was also a privately owned company which was also sponsored by the government.

9. While operating as GSEs there were still exempted from taxation and also there were still going to be backed up by the government incase they fail or incase something would occur. These two companies are the only two companies...
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