Fannie Mae, Freddie Mac and Sallie Mae
1938 Fannie Mae, the
Federal National Mortgage Association, is founded as a government agency
as part of Franklin Delano
Roosevelt's New Deal (an extension of
Herbert Hoover's New
Deal), in order to provide liquidity to the
1938 to 1968 Secondary
mortgage market in the US is monopolized by Fannie Mae.
1968 Fannie Mae is converted into a private corporation to
help balance the federal budget.
Fannie Mae at one time is the
ninth-largest business in the world according to Forbes.
1970 Emergency Home Finance
Act is passed to provide
competition in the secondary mortgage market, and to prevent Fannie Mae
from continuing to have a monopoly.
Freddie Mac as a private
corporation to compete in this same market.
1972 Sallie Mae, the
Student Loan Marketing Association is founded as a government sponsored
The coorporation remains the country's largest originator
of federally insured student loans.
"The dirty little secret of the
guaranteed student loan market is how concentrated it is: only 32 lenders hold
90% of the loan volume.
The Education Department has found that at
about 300 colleges one lender controls
99% of loan volume -
essentially holding a monopoly on those
campuses" - Stephen Burd
Under the Financial Institutions Reform, Recovery, and Enforcement Act
Freddie Mac becomes a publically
1996 Lenders of student loans are
specifically exempted from the Fair Debt Collection Practices
1999 The statues of limitations are
removed from license debt created from
are now never forgiven in bankruptcy.
Student seeking loans are not
allowed to shop loans as most institutions
have captive lenders.
Student loans may be refinanced only once, so
if interest rates drop the borrower
will be stuck with the original rate.
Defaults are typically charged
25% of the loan value.
Student loans are also exempt from "truth in
lending" regulations and rules that require lenders to explain fees and
Student loan collection rights include the right to
garnish wages, tax refunds, Social Security payments and disability
Sallie Mae starts its Opportunity Loan Program.
A lender hands a
college a fixed amount of private loan money which the college then lends to
students with credit problems for higher rates with less consumer protection.
The college then promises to make the lender it's exclusive provider of
loans backed by Sallie Mae.
In the past this used to be called
monopolizing a captured market through kickbacks.
Sallie Mae denies
but agrees to pay a $2 million fine.
Freddie Mac hires the lobbying and PR firm
DCI Group for a "stealth lobbying campaign."
DCI did not file
lobbying reports on the contract, and Freddie Mac executives referred to the
lobbying campaign as their "stealth lobbying campaign."
2006 Treasury Secretary Hank Paulson nationalizes Fannie Mae
Fannie Mae pays a fine of $400 million for alleged accounting
manipulations and lying to investors. Earnings are reduced by $6.3
Freddie Mac is fined $3.8 million for illegal campaign
contributions arranged by Freddie Mac lobbyists including former House Speaker
Newt Gingrich, who recieved $300,000 to push for increased
deregulation, and former Senator Alfonse
Freddie Mac agrees to settle lawsuits stemming from a $5
billion profit reduction restatement of 2003 earnings.
Freddie Mac makes
"six-figure payments to 52 outside lobbying firms and political
After nationalization, Fannie and Freddie own 90% of US
Private equity group led by JC
Flowers that has sought to buy out Sallie Mae informs Sallie Mae that if
reductions in subsidies
pending in a legislative bill are passed by Congress then the sale would be at
George Walker Bush requested a reduction of
subsidies to Sallie Mae of $16 billion.
The House approved of a measure that would lower subsidies by $19
billion over five years.
No subsidies = no
September 6, 2008 The
director of the Federal Housing Finance Agency (FHFA), James B. Lockhart
III announces his decision to take Fannie Mae and Freddie Mac into
conservatorship run by FHFA.
Over 98% of Fannie's loans were paying
timely but $270 billion in loans that Fannie Mae had purchased or guaranteed
between 2005 and 2008 were now considered risky.
Fannie Mae and Freddie
Mac each had a positive net worth as of the date of the takeover.
takeover was triggered by
swap derivative contracts.
default swap parlance this is termed a credit event.
the settling of outstanding contracts for the derivatives, which are used to
hedge or speculate on the potential risk that
a incorporation will default on its bonds.
"Credit default swaps are
essentially insurance policies covering the losses on securities in the event
of a default.
institutions buy them to protect
themselves if assets drop in value.
It's like bookies trading bets, with banks
and hedge funds gambling on whether an investment (bundled subprime mortgages)
will succeed or fail.
Swap related provisions of Gramm's bill -
supported by Fed chairman
and Treasury secretary Larry Summers - a
$62 trillion market (nearly four times the size of the entire US stock market)
remained utterly unregulated, no one made sure the banks and
hedge funds had
the assets to cover the losses they guaranteed." - David Corn
Mae and Freddie Mac had approximately $ 1.5 trillion in bonds outstanding, and
since the market in credit
default swaps is not public, there is no central reporting mechanism to
verify how many credit default swaps are linked to those bonds.
Mae unveils the HomeSaver Advance plan to provide "foreclosure prevention assistance to distressed
borrowers" to avoid increased losses of as much as $2.4 billion in
credit default swaps.
71,000 cash advances to forestall foreclosure with an average value of
$6,500 for a total of $462 million In spring 2009 Fannie Mae valued those loans
at $8 million.
"Whatever credit defaults are in theory, in practice
they have become mainly side bets on whether some incorporation, or some
backed bond, some municipality, or even the US
government will go bust.
Call it insurance if you like, but it's not the
insurance most people know.
It's more like buying fire insurance on
your neighbor's house, possibly for many times the value of that house - from a
incorporation that probably doesn't have any real ability to pay you if someone
sets fire to the whole neighborhood." - Michael Lewis & David Einhorn
"On September 7, 2008, the Federal Housing Finance
Agency (FHFA) placed Fannie Mae and Freddie Mac, two government-sponsored
enterprises (GSEs) that play a critical role in the US home mortgage market, in
As conservator, the FHFA has full powers to control the
assets and operations of the firms.
This means that the
US taxpayer now stands behind
about $5 trillion of GSE-issued debt." - Mark Jickling, November 24, 2008
"When Fannie Mae and Freddie Mac were taken into conservatorship by
the government, they were leveraged
at an eye-popping 100 to 1." - Mike Whitney
Franklin Raines, Bill
Clinton's White House
budget director, is accused by the Office of Federal Housing Enterprise
Oversight (OFHEO), the regulating body of Fannie Mae, of abetting
widespread accounting errors based on the overstated earnings estimated at $6.3
The OFHEO announced a suit against Franklin Raines in order to
recover some or all of the $50 million in payments made to Franklin Raines.
Former Fannie Mae chief Franklin Raines, chief financial officer
Timothy Howard and former controller Leanne Spencer agreed to a $31.4 million
David Kellermann, CFO of Freddie Mac, commits
Mac asks for $31 billion in additional aid after posting a gargantuan loss of
more than $50 billion in 2008.
The loss' were driven by $13.2 billion
in hedged trades, $7.2 billion in credit losses from the declining housing
market conditions and $7.5 billion in write-downs of the value of its
mortgage backed securities.
incorporation also takes a charge of $8.3 billion for now-worthless tax
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