Lehman Brothers Collection - Contemporary Business Archives

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Lehman Brothers Collection

Twentieth-Century Business Archives

Federal National Mortgage Association - Lehman Brothers Collection

Federal National Mortgage Association

List of Deals

The Federal National Mortgage Association was charted by the Federal Housing Administration in 1938 as a publicly owned company regulated by the federal government. Originally known as the National Mortgage Association, the company was designed to help relieve the nation's housing problem during the Depression by buying and selling mortgages. Three months after it was chartered, the company's name was changed to Federal National Mortgage Association, or FNMA, and has been known as Fannie Mae ever since.

The federal government took an interest in facilitating home mortgages as a way to invigorate the residential construction industry as well as to provide adequate housing for its citizens. Fannie Mae's purpose was to establish a secondary mortgage market to rejuvenate original lenders such as mortgage banks, savings and loan associations, and commercial banks by stimulating enough cash flow to allow them to make new loans. The company bought mortgages insured by the Federal Housing Administration (FHA) from these private lenders and either kept them for its own portfolio or sold them to private investors. The secondary market Fannie Mae created also made private lenders confident about making FHA-insured mortgages, which some had been reluctant to do. Once assured that they could easily turn these mortgages into cash if they needed to, lenders were more inclined to extend mortgage credit. In addition, the secondary mortgage market helped smooth out discrepancies between capital-rich and capital-poor regions of the country. In its first decade of existence, the company bought 66,947 FHA-insured mortgages and sold 49,048.

In 1949 Fannie Mae expanded its activities to include buying and selling loans guaranteed by the Veterans Administration (VA). The company continued to succeed and bought 133,032 in 1950, compared with 6,734 two years earlier. Some viewed Fannie Mae's growth with trepidation; they believed that the company had brought government too far into the private sector. Congress responded to these sentiments by passing the Federal National Mortgage Association Charter Act in 1954, which turned the company into a mixed-ownership corporation. The Treasury of the United States was issued non-voting preferred stock, and non-voting common stock was sold to mortgage lenders, who were now required to own stock in order to sell mortgages to Fannie Mae.

Fannie Mae continued its usual operations during the 1950s and 1960s. In 1966, when primary mortgage lenders temporarily lacked the liquid resources to make new mortgages, Fannie Mae became the largest buyer in the market. The cost of borrowing enough money to purchase all the mortgages was high enough that the company's profits dropped significantly that year. To help ensure Fannie Mae's continued success, in 1968 the company began the transition from mixed ownership to a private corporation. The Housing and Urban Development Act of 1968 split the old Fannie Mae into two separate corporations: The new Fannie Mae conducted secondary mortgage market activities just as the old one had done, while a new company called the Government National Mortgage Association (GNMA), or Ginnie Mae, assumed the "special assistance" and "management" functions of the old Fannie Mae, guaranteeing FHA and VA mortgages. The Department of Housing and Urban Development (HUD) maintained "regulatory power" over the new Fannie Mae. By 1970 the company's transition to private control was complete. At that time, the company introduced conventional loan mortgage documents. In 1972 Fannie Mae bought its first conventional mortgages, that is, mortgages that were not insured by the FHA or guaranteed by the VA.

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