Was the U.S. federal government’s 1932 intervention in the market for home ownership desirable? How did the creation of Fannie Mae in 1938, Ginnie Mae in 1968, and Freddie Mac in 1970 expand homeownership and shape lending practices at banks and other mortgage lending firms?
Yes, I do believe that the U.S. federal government’s 1932 intervention in the market for homeownership was desirable, not only for the government but also for potential home owners as well as those in construction, etc. Prior to the intervention only short-term, nonamortizing loans with lower LTV ratios were available and the result was many loans being defaulted on. The intent of the intervention was to assist in minimizing defaulted loans on short-term mortgages by creating the FHLB which created additional funds for home mortgages. The federal government in turn passed the NHA which basically provided lenders insurance (through the government) on default loans which obviously decreased the risk lenders faced. The government intervention ultimately allowed those who would not typically qualify for a mortgage (pre-1932) to acquire the means to purchase a home. The creation of the government corporation, Fannie Mae, in 1938 expanded homeownership because its purpose was to serve as a facilitator for secondary market mortgages. It also allowed private lenders to issue more loans because now they could be sold in the secondary market. It seems like it basically provided the foundation for more high-risk loans, thus increased quantities of loans. Eventually in 1968, it became a publically traded government corporation which allowed the U.S. government to not have to include it on the federal budget. Ginnie Mae came to be in 1968 when government insured FHA mortgages were changed over to a “wholly owned government corporation.” Freddie Mac was created in 1970 and was operated like Ginnie Mae. Freddie Mac actually started creating mortgage-backed securities that sold as shares to...
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