Fannie Mae Case Study

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Fannie Mae functions as an entrepreneurial agency since the costs are heavily concentrated on some industry, profession or locality but the benefits are spread over many if not all people.1 This type of agency will face hostile interest groups because of the low-per capita benefits but because costs have a high per capita value, the agency has a strong incentive to oppose the law.1
The Federal National Mortgage Association The Bank Act of 1932 led to the establishment of The Federal National Mortgage Association (FNMA). The act gave 215 million dollars in treasury and tax- free bonds to help fund mortgage and other financial institutions.2 Before the era of FNMA, homeowners could not afford home mortgages. The mortgage loans were short term renewable loans that …show more content…

The company has to buy mortgages with a loan to value ratio of 80 percent unless the mortgage carries mortgage insurance or other credit support. 3 FNMA was allowed to borrow money at cheaper rates than their private counterparts to help create the secondary market, which consisted of only FNMA until the creation of The Federal Home Loan Mortgage Corporation (FHLMC) in 1970.2 In the early 2000s, FNMA gave mortgage loans to people who could not pay them back and as a result the homeowners defaulted on their mortgage loan. These unstable loans helped to bring around the financial crisis of the early 2000s. On September 6, 2008 FNMA was put into a conservatorship with the United States Government.4 The US Department of Treasury is providing financial services to FNMA so that the company can remain stable. The Federal Housing Finance Agency (FHFA) is now the authority of the board of management of FNMA, which gives FHFA the power to make decisions for FNMA. The FHFA created a platform that would maintain FNMA’s current business but it would upgrade their infrastructures, which would save taxpayers money.

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