Fannie Mae & FNMA

[gnargtharst 0]

I'm reading a continuing education course (for real estate appraisers) booklet that has the following blurb: "The Federal Housing Administration was created to encourage homeownership...FHA offered 30-year fixed rate mortgages and insured them...calming jittery investors" The material then has a few lines that suggest that this was the cause of rising homeownership from 1940 to 1960. It then continues: "Fannie Mae [Federal National Mortgage Association] was created in 1938 to purchase FHA insured loans..." and later puchased VA and conventional loans, as well.

I have a couple of questions about this material; I only trust the answers of those who aren't steeped in nonsense economics, thus my post here on this forum:

"FHA offered and insured 30-year mortgages". I'd guess this isn't entirely accurate, that they weren't "insured", but rather "guaranteed" via tax-derived subsidies/"loan guarantess". Yes? No?

Did/does FHA get its capital for mortgages directly from tax revenues? Or does it use private capital which is governmentally regulated/controlled/"guaranteed"?

"Fannie Mae was created in 1938 to purchase insured loans". Created... by whom? Is it a governmental or private entity?

Thanks in advance for any answers.

[HeroicLife 0]

Fannie May and Freddie Mac are superficially private entities, but they operative with an implicit government guarantee because they are “too big to fail.” This encourages mortages that would be too risky in a free market, creating an artificial housing boom that in turn leads to government regulations attempting to control their risks. There is a great story on this in the Economist:

http://www.economist.com/agenda/displaySto...tory_id=3686475

[CICEROSC 0]

A quote from the article HeroicLife cited:

"On Thursday February 17th, he [Alan Greenspan] told Congress that by letting these two agencies grow unchecked, “We are placing the total financial system of the future at a substantial risk.”

This is a very good article, and though it's hard to tell where Alan Greenspan is coming from nowadays, I think he's right on the money with this statement.

The stock market bubble in 2000 was restrained at least somewhat because many people eventually recognized that it was built on speculation ("irrational exuberance"). It seems to me that the real estate boom is likely to suffer a worse fate because -- supported by the likes of Fannie Mae and Freddie Mac -- practically no one recognizes the speculative underpinnings. My view is that it is not a question of if, but when, the disaster happens, and my bet is sooner rather than later.

[HeroicLife 0]

Another revealing article on Fannie May:

http://www.financialsense.com/editorials/r...c5.html#Englund