Meet Fannie Mae's 'Siblings'

Freddie Mac and Ginnie Mae

By: Kristina Jarczyk

Buying or selling a home can be difficult these days, but it's far from the first time things have been tough for the residential real-estate market.

During the Great Depression, would-be homeowners in the US faced a double-whammy. First, there was the challenge of finding - or keeping - a job and making ends meet enough to pay for a place to live. Second, with so many banks failing or running low on assets themselves, mortgages were hard for people to come by.

That's why FDR in 1938 created a program called the Federal National Mortgage Association (FNMA). Fannie Mae, as it became known, established a new market: the secondary mortgage market. The agency bought mortgages from local banks, giving those institutions fresh cash that could then be loaned out to other homebuyers. In doing so, the government aimed to give residential home-lending a much-needed boost.

For several decades, Fannie Mae was the secondary mortgage market - no other organization did what it did. In 1968, though, the federal government was feeling serious financial strain from the Vietnam War and found a way to ease its budget concerns by breaking Fannie Mae into two parts: one, a publicly traded corporation driven by stockholder investment (though it was still considered a government-sponsored enterprise, or GSE), and the other, a wholly government-run organization.

The new public corporation kept the name Fannie Mae. The new government entity was the Government National Mortgage Association, otherwise known as Ginnie Mae.

Unlike Fannie Mae, Ginnie Mae doesn't buy mortgages from banks. Instead, it allows approved lenders to bundle large numbers of qualifying home loans into mortgage-backed securities (MBS) that can be sold to investors under the Ginnie Mae label with the full guarantee of the federal government. That's because only home loans already insured by other government agencies can be securitized through Ginnie Mae. Those include loans issued through the Federal Housing Administration, the Department of Veterans Affairs and the Department of Housing and Urban Development.

Still looking to do more to encourage home-lending and ownership, Congress just two years later created another GSE program: the Federal Home Loan Mortgage Corporation, or Freddie Mac. Freddie Mac, essentially, became new competition for Fannie Mae. The goal was to keep the secondary mortgage market healthy, and keep enough funds flowing to home-lenders so new mortgages could continue to be issued.

By 2008, that goal had again become elusive, hit by the global recession and growing number of defaults on home loans, especially subprime loans. In September of that year, both Fannie Mae and Freddie Mac were placed under a type of government control called conservatorship, where they remain today. Two years after that, both were also delisted from the New York Stock Exchange after their trading prices fell below $1 per share.


Neither of those outcomes has affected Ginnie Mae, which today makes much of the fact that it's "the only mortgage-backed security that enjoys the full faith and credit of the United States Government."


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