The Rise and Fall of Fannie Mae: A Timeline

Fannie Mae and Freddie Mac were in the news a lot this year. For starters, there was the presidential summit in August, to solicit ideas for what to do with the ailing government-sponsored enterprises (GSEs for short). That was followed by midterm-election wrangling over whether to replace the struggling mortgage giants with another form of federal insurance or kill them off all together, effectively getting the feds out of the business of guaranteeing mortgages.

Fannie and Freddie's fate could be sealed as early as January 2011, when the White House is due to present a comprehensive reform proposal to Congress. In honor of the occasion, we thought we'd take a look back at the history of these once-august institutions.
Fannie Mae and Freddie Mac: A History

1938: Fannie Mae founded as part of post-Depression New Deal

Back before the government got into the mortgage business, borrowers couldn't count on banks having money to lend where and when the funds were needed. President Franklin Delano Roosevelt created Fannie Mae to pool together a national fund for mortgage lending, making home ownership an affordable dream for cash-strapped Americans.

1968: Fannie goes private to relieve burden on Feds, gains status as a government-sponsored enterprise
As the Vietnam war piled debt onto the federal budget, President Lyndon B. Johnson looked for places to cut – and decided to sell off Fannie Mae to private investors. The new company, while private, was still federally regulated and benefited from discounted interest rates.

1968: Ginnie Mae takes over Fannie's government loans
The federal government kept a hand in mortgage financing through Ginnie Mae, founded to finance mortgages insured by the Federal Housing Administration and housed at the new U.S. Department of Housing and Urban Development. FHA soon becomes embroiled in fraud schemes that scar urban neighborhoods with foreclosures.

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1970: Freddie Mac formed to break Fannie's monopoly on the secondary mortgage market
A decade before the deregulation (and eventual implosion) of savings & loan institutions, Freddie Mac emerged as a third "government-sponsored enterprise" exclusively to finance mortgages for S&Ls.

1970: Fannie Mae listed on NYSE
With the nation's leading financer of home mortgages now in investors' hands, executives had to seek rapid growth and big returns.

1974: Wall Street banks win permission to trade in Ginnie Mae bonds
With regulators' permission, private bankers start trading in Americans' mortgages--and realize they're sitting on a gold mine.

1981: Fannie starts buying ARMs and selling mortgage-backed securities
By 1988, Fannie, Freddie and Ginnie had built a $140 billion business--so big that Wall Street busted its way in.

1988: Fannie Mae joins the S&P 500
Deregulation and new tax laws aimed to encourage the creation of more mortgage-backed securities give Fannie and Freddie an unprecedented boost.

1989: Freddie Mac goes public

1992: Congress requires Fannie and Freddie to set "affordable housing goals"
The S&L bailout includes a new rule: Fannie and Freddie must aim a certain amount of business to borrowers with modest incomes.

1994: Fannie opens "Partnership" offices nationwide
Its reach and political power now extend into cities all over the country.

1996: Fannie marks 10 consecutive years of earnings
The company sees record-setting growth, accelerating under CEO James A. Johnson's "trillion-dollar commitment" to bring homeownership to more Americans.

1998: Freddie Mac enters the subprime market
In a quest for market growth, Freddie reclassifies certain subprime loans to qualify them to be purchased by the agency.

2000: Wall Street gets HUD to limit Fannie and Freddie's business
Under pressure from banking lobbyists, HUD turns up the heat on Fannie Mae and Freddie Mac, requiring them to make more than half of their loans to lower-income households. That same year, Wall Street wins a green light to trade secretly in complex credit securities and gets ready to pump trillions into the mortgage business.

2003: Black Swan author Nicholas Nassim Taleb says FNMA "seems to be sitting on a barrel of dynamite"

2004: Bush administration regulators begin investigation of Fannie Mae's finances
Fannie is forced to restate $9 billion in earnings. CEO Franklin Raines resigns.

2005: Flush with funds from investors, Wall Street builds a subprime securities machine
In just two years, private bankers devour Fannie and Freddie's market share with subprime loans that look more affordable to many borrowers. Fannie and Freddie loosen their standards to compete.

2007: Subprime mortgage crisis begins
Wall Street lenders, overleveraged on extremely risky and often fraudulent subprime loans, begin to suffer drastic losses. Fannie and Freddie lose big too, on their substantial holdings of Wall Street mortgage-backed securities.

2008: Fannie and Freddie seized by Treasury
After shares of Fannie and Freddie tumble, federal regulators take them into conservatorship. Following collapse of Lehman Brothers, federal bailout relies on Fannie, Freddie and Ginnie as only viable remaining markets for mortgages.

August 17, 2010: The Obama administration holds conference on the future of the housing finance system. The big question: How to reform Fannie and Freddie without completely destabilizing an already shaky housing market?

November 12, 2010: Joseph A. Smith nominated director of the Federal Housing Finance Agency
If approved, he'll become the man in charge of directing the process that will seal Fannie and Freddie's fate. As for his own fate, at press time it was uncertain, with Republicans pressing to delay his confirmation. Stay tuned.

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