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Special> Global Financial Crisis> Background
UPDATED: October 25, 2008  
Fannie Mae, Freddie Mac

Fannie Mae, or The Federal National Mortgage Association (FNMA) (NYSE: FNM), is a stockholder-owned corporation chartered by Congress in 1968 as a government sponsored enterprise(GSE), but founded in 1938 during the Depression.

As a matter of fact, Fannie Mae does not make home loans directly to consumers, but rather functions as a leading participant in the U.S. secondary mortgage market. By purchasing and securitizing mortgages, Fannie Mae facilitates liquidity in the primary mortgage market by ensuring that funds are consistently available to the institutions that do lend money to home buyers.

The Federal Home Loan Mortgage Corporation (FHLMC) was created in 1970 to expand the secondary market for mortgages in the U.S.. Along with other GSEs, Freddie Mac buys mortgages on the secondary market, pools them, and sells them as mortgage-backed securities to investors on the open market. This secondary mortgage market increases the supply of money available for mortgages lending and increases the money available for new home purchases.

The name "Freddie Mac" was a creative acronym of the company's full name that had been adopted officially for ease of identification.

On Sept. 7, 2008, James Lockhart, director of the Federal Housing Finance Agency (FHFA), announced that Fannie Mae and Freddie Mac were being placed into conservatorship of the FHFA.

The action is one of the most sweeping government interventions in private financial markets in decades. As of 2008, Fannie Mae and the Federal Home Loan Mortgage Corporation (Freddie Mac) owned or guaranteed about half of the U.S. 12 trillion dollar mortgage market.

(Agencies October 14, 2008)

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