Financial Crisis about Fannie Mae Research Paper

Financial Crisis about Fannie Mae - Research Paper Example The Congress and President Roosevelt then passed a bill allowing for the establishment of Fannie Mae in order to freeze up capital by buying mortgages from lenders (Birger 38). The company was therefore chartered by the Federal Housing Act of 1934 to relieve the housing problem and increase homeownership among Americans. The primary purpose of Fannie Mae was to develop a secondary mortgage aimed at rejuvenating the financially strapped lenders such as loans and saving associations, mortgage banks, and commercial banks. Being a charted financial institution which is regulated by the Federal Housing Finance Agency (FHFA), Fannie Mae was not affected by the Gramm-Leach-Bliley Act of 1999 (Birger 44). Before the 2008 housing bubble burst, Fannie Mae was very successful. However, the fall in home prices and mortgage securitization changed the mortgage and housing sectors, which culminated in plummeting property values and foreclosures. The subprime events are partially blamed for unethical considerations by the lending institutions. However, the weight of the crisis can be explained by the global financial contagion, which was inevitable and hence characterized as bad luck. Following the global financial crisis, all the financial and credit institutions either were either culprits or victims. The financial hardship period was met by a higher degree of defaults in the loans and credits advanced to potential borrowers. On their part, Fannie Mae was blamed for their inability to regulate and control internal affairs which included poor accounting and credit policies (Birger 45). After the real estate cratered, it was criticized for being unable to safeguard their investment portfolio s. Having heavily invested in the subprime-backed securities, a higher rate of default in the mortgage industry adversely affected the company.