FEDERAL NATIONAL MORTGAGE ASSOCIATION
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 corpora-
tion 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 low-
to middle-income home buyers. Tighter federal
regulation began in the early 1990s, even as crit-
ics in Washington, D.C., argued that Fannie Mae
should be completely privatized.
A broad federal response to the Great Depres-
sion 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 diffi-
cult to secure. Congress responded first in 1934
by creating the Federal Housing Administration
(FHA), a body charged with stabilizing the mort-
gage 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repealed by REORGANIZATION PLAN of 1957 No. 1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 sup-
ply 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 pur-
chase 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 govern-
ment began issuing stock in Fannie Mae as part
of a plan to share responsibility for the corpora-
tion’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 prerequisite for selling mort-
gages to Fannie Mae.
A shift to private ownership began in 1968.
First, Congress split Fannie Mae into two enti-
ties: One retained the name Fannie Mae, and the
other was called the GOVERNMENT NATIONAL
MORTGAGE ASSOCIATION (GNMA), under
authority of title III of the National Housing Act
(12 U.S.C.A. §§ 1716–1716b [1983]). Whereas
GNMA, also known as Ginnie Mae, was char-
tered to provide funding for federally assisted
housing programs, the new Fannie Mae retained
its original mission but with a new source of
funding: Lawmakers wanted it to become self-
sustaining through fees and SECURITIES.In
1970, the federal government sold its share of
stock to Fannie Mae for $216 million, severing
its last financial tie to the corporation. Two years
later, Fannie Mae expanded the scope of its
investments by purchasing non-federally guar-
anteed loans as well.
Despite its financial independence, the cor-
poration remains closely linked by its charter to
the federal government. Federal oversight
remained, as did Fannie Mae’s mission to pro-
vide services to low-, moderate-, and middle-
income homebuyers. During the 1970s and
1980s, the corporation grew enormously, partic-
ularly through the securities market, where it
sold so-called mortgage-backed securities,
which are pools of mortgage loans acquired
from lenders for which the acquiring corpora-
tion earns guarantee fees. Its stock was actively
sought, primarily because of profitability and a
sense on Wall Street that the federal government
would always back up the corporation in bad
times. In fact, the enormous flow of money
through Fannie Mae rivaled that of the nation’s
major lending institutions. Fannie Mae volun-
