Federal National Mortgage Association (Fannie Mae)

 

Government-sponsored enterprise created to increase the supply of money available to lend to homebuyers.

Congress created the Federal National Mortgage Association, or Fannie Mae, in 1938 as a subsidiary of the Reconstruction Finance Corporation, which provided funds for banks and businesses. Fannie Mae initially focused on the purchase of long-term mortgages insured by the Federal Housing Authority. Fannie Mae does not lend money directly to homebuyers; the corporation buys mortgages from banks in order to increase the lending capacity of the banks.

After World War II, the corporation’s mission expanded to include developing a secondary market for mortgages guaranteed by the Veterans Administration. Fannie Mae received a charter from Congress in 1948 that regularized its position as a government corporation. The Federal National Mortgage Association Charter Act of 1954 started the process through which the corporation became more reliant on private capital than funds from the federal Treasury. In 1968, Congress amended the 1954 law to make Fannie Mae a government-sponsored enterprise—a private company with stockholders and some government connections and protections.

Mortgage lenders have opposed the activities of Fannie Mae since World War II. They argue that the corporation has an unfair advantage because of its ties to the federal government. It does not have to register with the Securities and Exchange Commission like other publicly traded companies. In addition, Fannie Mae does not have to pay state and local corporate income taxes. The federal government also is willing to assist Fannie Mae in case of financial difficulty. In 2001, Representative Richard Baker, a Republican from Louisiana, introduced a bill that would restrict Fannie Mae’s activities and place the corporation under the regulation of the Federal Reserve. Some critics argued for the privatization of the corporation and the severing of its lines of credit with the federal government. Baker’s bill failed to pass.

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