Fannie Mae

The dismal science Economics

Economic systems

$  Free market   €  Social democracy   ☭ Socialist economy

Major concepts

Privatization Tipping point Right-to-work law Elasticity (economics) Insurance in the U.S.

The worldly philosophers

Andrew W. Mellon Thomas Sowell Ludwig von Mises Alexander Hamilton v - t - e

Fannie Mae (the Federal National Mortgage Association, or FNMA) is a "government-sponsored enterprise" (GSE) created in 1938 and today has become the largest underwriter of home mortgages in the United States.

Operation

It does not lend money directly to consumers, instead purchasing bundles of loans that banks make on what is called the secondary market. Fannie Mae issues guidelines to mortgage lenders on the documentation required from borrowers to conform to what Fannie Mae agrees to buy. Qualifying guidelines primarily focus on income, credit reports, and loan to value. By Fannie Mae guaranteeing purchase of bundles of mortgages from banks, lenders' funds are quickly replenished and they are able to originate more loans.

Scandals and crises

In 2006 Fannie Mae was wracked by an accounting scandal. Regulators found a culture of corruption where management overstated earnings by $11 billion during the late 1990s and reaped huge bonuses for themselves.

Following the Great Recession, Fannie Mae currently guarantees against default about $5 trillion in mortgages of American homeowners -- nearly half of all mortgages in the United States. It, alongside sister GSE Freddie Mac (Federal Home Loan Mortgage Corporation, or FHLMC), was nationalized placed under conservatorship by the Federal Housing Finance Agency (FHFA) in September 2008.

Conspiracy

Fannie & Freddie became part of the usual suspects for some people who decided that ~$ big government $~ was solely responsible for the 2008 financial collapse. Exactly how is complicated, but suffice to say it involves a mutated timeline and a dash of truth amongst the BS. Technically, the government did ease regulations on the financial sector, much of which was based on oversight, but that only allowed financial institutions offering mortgages to be far more reckless in their practice offering more and more NINJA (No Income, No Job/Assets) loans.