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Meet Fannie Mae, Freddie Mac in the recovery room

 
By Richard Mize | Published: August 2, 2008    Comment on this article Leave a comment

Fannie Mae? Freddie Mac?

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Who? Here's who, since they've been in the news so much lately, especially this week after the president signed the big housing bill. Among a gozillion other things, it extends more credit to Fannie and Freddie and lets the U.S. Treasury buy stock in them to prop them up.

Meet Fannie Mae
Congress chartered the Federal National Mortgage Association — known by the nickname Fannie Mae — in 1938 to issue bonds and use the proceeds to buy mortgages from lenders backed by the still-new Federal Housing Administration.

In 1934, about 10 percent of the nation's homes were in foreclosure, construction jobs were halved from the pre-Depression peak and credit was as scarce as hen's teeth because the banking system was about to collapse. Think George Bailey, Bailey Bros. Building & Loan and "It's a Wonderful Life.”

Creating the FHA and insurance for mortgage lenders led to loans with easier terms. By the 1950s, most loans were for 30 years, not the previously typical 10 years with a balloon payment at the end and the requirement of a 50-percent down payment. (Think Henry Potter, George Bailey's fat-cat slumlord nemesis).

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Related Topics: Public Finance, Business, Central Banking, Government and Politics, Economies, U.S. Economy



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