FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA)

At the request of President Franklin Roosevelt, the Federal National Mortgage Association (FNMA), popularly known as Fannie Mae, was chartered on February 10, 1938, as a wholly owned and controlled subsidiary of the federal Reconstruction Finance Corporation (RFC). Fannie Mae was designed primarily to increase the availability of mortgage credit in order to stimulate the home construction industry and reduce unemployment. When credit was in short supply due to a recession, Fannie Mae would purchase home mortgages that were made by private lenders and had been insured by the Federal Housing Administration (FHA). When credit became more plentiful, Fannie Mae would resell the mortgages to other lenders, thereby smoothing out the highs and lows of the economic cycle. It was also hoped that Fannie Mae's purchases would lower national interest rates and generate lender confidence in FHA-insured loans.

The establishment of Fannie Mae marked the culmination of the federal government's involvement in housing markets during the Great Depression. Both the Home Owners Loan Corporation, created in 1933 to refinance troubled mortgages, and the FHA, established in 1934 to insure new mortgages, substantially increased funds available to homeowners. The National Housing Act, which created the FHA, also authorized the chartering of private national mortgage associations to help market federally insured mortgages. The mortgage associations were to be supervised by the head of the Federal Housing Administration and they were authorized to purchase mortgages with funds raised through the public sale of notes, bonds, and other obligations. It was hoped that primary lenders who sold their existing mortgages would use their new funds to finance additional mortgages.

Contrary to the expectations of policymakers, investors did not form private mortgage associations and home financing continued to be scarce. The first, reluctant experiment with federal mortgage acquisition occurred when the RFC Mortgage Company, set up in March 1935 to support the commercial real estate market, agreed to purchase some FHA-insured mortgages in order to help the ailing construction industry. Fannie Mae finally opened its doors in 1938 with a charter issued by the Federal Housing Administration and $11 million provided by the RFC.

Fannie Mae remained a relatively small operation in its early years. Under its founding president, Sam Husbands, Fannie Mae issued just two series of obligations to pay for mortgage acquisitions, raising $29.7 million in 1938 and $55.5 million in 1939. Since its inception Fannie Mae has undergone many changes. In 1948 it was authorized to purchase loans insured by the Veterans Administration as well. Congress partially privatized Fannie Mae in 1954 and completed the process in 1968 when it set up a new scaled-back federal agency, the Government National Mortgage Association (Ginnie Mae). Fannie Mae has continued to grow, becoming the third largest corporation in the United States, with total assets of $800 billion in 2001. Fannie Mae is credited with helping to expand homeownership in the immediate postwar years. However, critics have charged that the secondary mortgage market, which it created, hurt urban communities by allowing financial institutions to transfer savings funds out of cities and into mortgage loans made in profitable suburban developments throughout the country.

See Also: CITIES AND SUBURBS; FEDERAL HOUSING ADMINISTRATION (FHA); HOME OWNERS LOAN CORPORATION (HOLC); HOUSING; RECONSTRUCTION FINANCE CORPORATION (RFC).

BIBLIOGRAPHY

Bartke, Richard W. "Fannie Mae and the Secondary Mortgage Market." Northwestern University Law Review 66 (1971): 1–78.

Federal National Mortgage Association. Background and History. 1975.

Hays, R. Allen. The Federal Government and Urban Housing: Ideology and Change in Public Policy. 1995.

Jackson, Kenneth T. Crabgrass Frontier: The Suburbanization of the United States. 1985.

Musolf, Lloyd D. Uncle Sam's Private, Profitseeking Corporations: Comsat, Fannie Mae, Amtrak, and Conrail. 1983.

Eduardo F. Canedo