history of fannie Ftreddie

Prior to the Great Depression

Mortgage availability was limit

ed, with 5-to-10 year terms, 

floating interest rates, and ~50% loan-to-value ratios

f
Mortgages were primarily originated
 and retained by local thrifts,
commercial banks, and insurance companies
f
Banks would lend at floating interest
 rates for a short term to match the
structure of their deposit funding sources
f
Supply of mortgage credit was limit
ed and required large initial down
payments
f
Availability and pricing of mortgage
credit varied widely across the U.S.
due to localized funding
f
Homeownership rate was ~45%

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The Great Depression
During the Great Depression, the U.S. mortgage market was 
paralyzed and required significant government involvement to 

eventually recover
f
Unemployment rate was nearly 25%
f
Housing prices declined as much as 50%
f
~25% of mortgages were in default and ~10% of homes were in
foreclosure
f
Homeowners were unable to satisfy
their principal payments and were
unable to refinance their short-term mortgages
f
The banking system was near colla
pse and was unable and unwilling to
provide a meaningful amount of mortgage creditf
1933: Created Home Owners’ Loan Corp

Issued government-backed bonds to fund t
he purchase of defaulted mortgages from
financial institutions

Converted short-term, variable rate mort
gages into long-term, fixed-rate mortgages
f
1934: Enacted National Housing Act, which established the Federal
Housing Administration

Provided credit insurance on long-term,
fixed rate mortgages made by approved
lenders
f
1938: Created Fannie Mae as a government agency

Purchased FHA-insured loans to provide liquidity for mortgage lenders
6
During the Great Depression, the government undertook a
series of mortgage-related initia
tives that culminated with the
creation of Fannie Mae
Government’s Response to the Great D
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Government’s Response to the Great Depression
During the Great Depression, the government undertook a 
series of mortgage-related initia
tives that culminated with the 

creation of Fannie Mae