The Story of Fannie Mae and Freddie Mac
Understanding the Origins of Fannie Mae
The Establishment of FHA and Fannie Mae
- Fannie Mae was established four years after the Federal Housing Administration (FHA), which was created in 1934. The government aimed to promote home ownership in the U.S. by making it more accessible.
- To enhance accessibility, better lending terms were introduced, including lower down payments and extended financing periods of 15, 20, or even 30 years instead of shorter terms like five to ten years.
- Prior to these changes, home buyers typically needed to pay cash or save a large down payment (40-50%) and finance the remainder over a short period through local banks.
Role of Fannie Mae in Home Financing
- Fannie Mae's primary function was to create liquidity for home buyers by allowing them to purchase homes with more affordable payments and reasonable down payments (5-20%).
- Although consumers could not obtain loans directly from Fannie Mae, banks were encouraged to lend money under favorable terms following government guidelines.