Fannie Mae
Wikipedia – The Federal National Mortgage Association (FNMA) (NYSE: FNM), commonly known as Fannie Mae, is a government sponsored enterprise (GSE) of the United States government. As a GSE, it is a privately owned corporation authorized to make loans and loan guarantees. It is not backed or funded by the U.S. government, nor do the securities it issues benefit from any explicit government guarantee or protection.
This secondary mortgage market helps to replenish the supply of lendable money for mortgages and ensures that money continues to be available for new home purchases. The name “Fannie Mae” is a creative acronym of the company’s full name that has been adopted officially for ease of identification.

Updated September 2008 – So what has changed with Fannie and Freddie as a result of the Treasury bailout? Not much, actually. Business will be performed as usual; the purchasing of mortgages from banks by Fannie Mae and Freddie Mac will continue as it always has. The exception now is that in exchange for cash infused by the Treasury into one of the two companies to support mortgage-purchasing liquidity, the Treasury will receive preferred shares of stock from whichever company was lent the cash. The upside to this – When the markets head back up, and Fannie and Freddie recover, The Treasury has the potential to make quite a chunk-of-change. The downside – If everything continues to tank up: bye, bye taxpayer dinero. Only time will tell whether this was a good decision on the part of the Treasury, although there really wasn’t much of another available choice. I know, we’ve all heard time and again that Fannie and Freddie couldn’t be allowed to fail yet I haven’t really heard anyone clearly explain why, so here’s a simplified answer: If Fannie and Freddie weren’t around to buy mortgages from banks, banks would have very, very, little to offer in the way of mortgages because they simply wouldn’t have the cash available to loan. As a direct result of this liquidity problem, competition for available mortgages would probably drive the interest rates of those mortgages up to a point where they would be unaffordable for most people. Ensuring the provision of liquidity in the mortgage market was the primary intention for the inception of Fannie Mae and Freddie Mac. However, I don’t believe the intention was that in the provision of this liquidity, either of these companies were required to purchase worthless mortgages from irresponsible lenders – Somebody or some groups of some-bodies at both of these entities had to know that many of these mortgages were complete trash. It is those individuals responsible for this oversight at Fannie and Freddie along with a whole laundry list of other individuals and groups of individuals that should be held accountable for this mess – this list should include: the irresponsible home purchaser who bought way more house than they could afford, the lender who gave that individual the loan, the division at Fannie or Freddie who blindly (or maybe not so blindly) purchased the worthless loan then bundled it into a mortgage backed security and sold that security on Wall Street, the insurance company (AIG, etc) that insured the worthless security and the rating company that gave the security a five star rating, among others that I’m sure I’ve missed. I only hope that at some point, when we’ve worked our way through this mess, that the individuals responsible for making these poor decisions are all held accountable.

As an aid to help understand what happened in the housing market, imagine an empty box – down at the point of origination of this mess, somebody found that empty box and taped it shut. They then took the taped shut box and sold it to someone else claiming the box contained something of value. This box was then placed in a big bag with many other boxes, some of which actually did contain something, and was then sold as a big bag of boxes. These bags full of boxes were bought, emptied, mixed with other boxes, then re-bagged and sold again many times. Pension funds, 401K’s, Hedge funds and many other similar entities bought up these bags of boxes because along the way the bags were given five star ratings and therefore considered an excellent investment because, you know, the box market can only go up! Now the resulting problem is we have these bags full of boxes that can’t have a value placed upon them because nobody knows what’s actually inside the boxes – and, as we’ve seen recently, uncertainty in the box market can and has spilled over into adjacent markets creating an overall global meltdown. All this turmoil because somebody (a lot of some-bodies actually) at the individual level was dishonest regarding the value of what was actually inside the box. What I want to know is who was in charge of verifying what was inside, or at the very least, checking to see if there was anything inside the boxes at all?

Original text – Founded by Franklin Delano Roosevelt in 1938 to help keep cash flowing in the mortgage market, the Federal National Mortgage Association (Fannie Mae) became the foremost purchaser of mortgages from lenders. In 1968, Fannie Mae was converted into a private corporation to help balance the federal budget. Today Fannie Mae is a publicly traded company with an assumed value of $2.8 trillion dollars. Fannie Mae makes money for its investors by charging a guarantee fee on mortgages that it secures into mortgage-backed security bonds. The maximum loan amount that Fannie Mae will guarantee is established in partnership with Freddie Mac and is called a “conforming loan“. As stated above: Fannie Mae receives no direct government funding or backing.

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