The
subprime shocks have been felt far and wide and it
looks like the world has not yet seen the last of
this. From subprime players to banks to insurance
companies to investment bankers, all of them have
borne the brunt of the collapse of the US mortgage
market. In this context, it is but inevitable for
the largest players in the mortgage secondary market
to be affected. Freddie Mac and Fannie Mae with a
combined asset base of over $1,600 bn and with a whopping
debt of $1.6 tn have been struggling to weather the
storm of the subprime and the tight liquidity condition
which followed it. It was just not possible to allow
such large enterprises to collapse and it was only
a matter of time before the US Treasury would do the
rescue act. On September 9, 2008, the US Treasury
provided both these entities the lifeline to sustain
themselves.
Fannie
Mae, also known as Federal National Mortgage Association
(FNMA), is a government-sponsored but privately-owned
enterprise that makes loans and guarantees loans.
It is a leading secondary mortgage market maker in
the US. It was established in 1938 under the Franklin
Delano Roosevelt's deal to improve the secondary mortgage
market and held monopoly position in the US in the
secondary mortgage market for 30 years. In 1968, Fannie
Mae was converted into a private organization to remove
its activities from the annual balance sheet of the
Federal budget. To improve competition and end the
monopoly of Fannie Mae, Freddie Mac was chartered
as a private company in 1970 under the Emergency Home
Finance Act, 1970.
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