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 mortgage
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 enterprise.
remains the country's largest originator of federally insured student
"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
Under the Financial Institutions Reform, Recovery, and Enforcement Act
Freddie Mac becomes a publically traded
of student loans are specifically exempted from the Fair Debt Collection
The statues of limitations are removed from license debt created from student
Student loans are now
never forgiven in bankruptcy.
Student seeking loans are not allowed
to shop loans as most institutions have captive
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
loan collection rights include the right to garnish wages, tax refunds, Social
Security payments and disability payments.
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 and
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
The House approved of a measure that would lower subsidies by
$19 billion over five years.
No subsidies = no
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.
and Freddie Mac each had a positive net worth as of the date of the
The takeover was triggered by
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.
swaps are essentially insurance policies covering the losses on securities in
the event of a default.
Financial institutions buy them
to protect themselves if assets drop in
It's like bookies trading
bets, with banks and hedge funds gambling on
whether an investment (bundled subprime mortgages) will succeed or fail.
provisions of Gramm's bill - supported by Fed chairman
Alan Greenspan 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
Fannie 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
swaps are linked to those bonds.
Fannie 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.
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
subprime mortgage 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 01/03/08
"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 conservatorship.
As conservator, the FHFA has
full powers to control the assets and operations of the firms.
means that the US taxpayer now
stands behind about $5 trillion of GSE-issued debt." - Mark Jickling, November
"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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