Government National Mortgage Association - History

History

In 1934, during the depths of the Great Depression, the Congress responded to the crisis by passing the National Housing Act of 1934, which established the Federal Housing Administration (FHA). One of the principal objectives of FHA was to increase the flow of capital to the housing markets by insuring private lenders against the risk of mortgage default. FHA also was tasked with chartering and regulating a national mortgage association that would buy and sell FHA-insured mortgages.

In 1938, Congress amended the act to create the Federal National Mortgage Association, more commonly known as "Fannie Mae", to help mortgage lenders gain further access to capital for mortgage loans.

The provisions of the act changed gradually over the years. It was not until 1968, however, in response to the need to further broaden the capital base available for mortgages that the housing finance system began to resemble its current form. As part of the Housing and Urban Development Act of 1968, Congress partitioned Fannie Mae into two entities:

• Fannie Mae, which was still originally restricted to purchasing FHA/VA mortgages (Fannie Mae was permitted to deal in conventional mortgages in 1970), and
• Ginnie Mae, formerly the Government National Mortgage Association, which originally only provided insurance for bonds issued by FHA/VA mortgages in special affordable housing programs.

Today, Ginnie Mae securities are the only mortgage-backed securities that are backed by the full faith and credit guaranty of the United States government, although some have argued that Fannie Mae and Freddie Mac securities are de facto beneficiaries of this guarantee after the US government rescued them from insolvency in 2008.