DamnYankee
Loyal to the end
From an email.
The Federal National Mortgage Association, colloquially known as Fannie Mae, was established in 1938 after the Great Depression to create a liquid secondary mortgage market and thereby free the loan originators to originate more loans, primarily by buying Federal Housing Administration (FHA) insured mortgages. (no government program ends)
[5] In 1968 Fannie Mae was converted into a private shareholder-owned corporation in order to remove its activity from the annual balance sheet of the federal budget.[6] Fannie Mae was split into the current Fannie Mae and the Government National Mortgage Association (GNMA), colloquially known as Ginnie Mae, to support the FHA-insured mortgages as well as Veterans Administration (VA) and Farmers Home Administration (FmHA) insured mortgages, with the full faith and credit of the United States government.[7] In 1970, the federal government authorized Fannie Mae to purchase private mortgages, i.e. those not insured by the FHA, VA, or FmHA, and created the Federal Home Loan Mortgage Corporation (FHLMC), colloquially known as Freddie Mac, to compete with Fannie Mae and thus facilitate a more robust and efficient secondary mortgage market. That didn't work out so well in retrospect.[7]
In 1977, the Carter Administration and the United States Congress passed and signed the Community Reinvestment Act of 1977, or CRA. The CRA provided that federally insured banks agreed to “.help meet the credit needs of the communities in which they operate, including low- and moderate-income neighborhoods...”
In 1981 Fannie Mae issue its first mortgage passthrough and called it a mortgage-backed security.[8] Ginnie Mae had guaranteed the first mortgage passthrough security of an approved lender in 1968[9] and in 1971 Freddie Mac issued its first mortgage passthrough, called a participation certificate, composed primarily of private mortgages.[9]
In 1999, Fannie Mae came under pressure from the Clinton administration to expand mortgage loans to low and moderate income borrowers {people who can't pay} by increasing the ratios of their loan portfolios (make more bad loans) in distressed inner city areas.[10] Fannie Mae eased credit requirements on the mortgages it was willing to purchase, enabling them to make loans to subprime borrowers {people who can't pay} at interest rates higher than conventional loans. Shareholders pressured Fannie Mae to maintain record profits.[10]
In 1999, The New York Times reported that the corporation's move towards the subprime market "Fannie Mae is taking on significantly more risk. But the government-subsidized corporation may run into trouble in an economic downturn, prompting a government rescue similar to that of the savings and loan industry in the 1980s."[13] Alex Berenson of The New York Times reported in 2003 that Fannie Mae's risk is much larger than is commonly held.[14] Nassim Taleb wrote in The Black Swan: "The government-sponsored institution Fannie Mae, when I look at its risks, seems to be sitting on a barrel of dynamite, vulnerable to the slightest hiccup. But not to worry: their large staff of scientists deem these events 'unlikely'".[15]
On September 10, 2003, the Bush Administration recommended the most significant regulatory overhaul in the housing finance industry since the savings and loan crisis. Under the plan, a new agency would be created within the Treasury Department to assume supervision of Fannie Mae. The new agency would have the authority, which now rests with Congress, to set capital-reserve requirements for the company and to determine whether the company is adequately managing the risks of its portfolios. (aka Stress test) The New York Times reported that the plan is an acknowledgment by the administration that oversight of Fannie Mae and Freddie Mac is broken.
The Times reported Democratic opposition to Bush's plan: "These two entities -- Fannie Mae and Freddie Mac -- are not facing any kind of financial crisis," said Representative Barney Frank of Massachusetts, the ranking Democrat on the Financial Services Committee. "The more people exaggerate these problems, the more pressure there is on these companies, the less we will see in terms of affordable housing." Representative Dodd and Frank called several of those testifying 'racist.
Despite the introduction of several 'reform' bills, Fannie Mae and Freddie Mac were never overhauled. Chris Dodd's friends got sweetheart loans from subprime lenders. Representative Dodd declined to seek relection.
Loans were made to buy houses people couldn't afford. Standards were lowered. Loans were 'securitized' and sold. Everyone in the real estate, mortgage, appraisal, and development industries knew it.
You know the rest.