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 market.

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.

The Government National Mortgage Association, Ginnie Mae, is established to promote home ownership.

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.

Congress charters Freddie Mac as a private corporation to compete in this same market.

Ginnie Mae begins creating and guaranting mortgage-backed securities.

Most mortgages securitized as Ginnie Mae mortgage-backed securities (MBSs) are insured by the Federal Housing Administration (FHA), which typically insures mortgages to first-time home buyers and low-income borrowers.

1972 Sallie Mae, the Student Loan Marketing Association is founded as a government sponsored enterprise.

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

1989 Under the Financial Institutions Reform, Recovery, and Enforcement Act Freddie Mac becomes a publically traded entity.

Student Loan Justice

The Student Debt Crisis in America:
Nothing Less Than A Student Debt Jubilee Will Do

Ripping Off Young America: The College-Loan Scandal

Fed Finds Student Debt Reducing Millennial Home Ownership

Debt-Entrapping: The US Student Loan Racket

1996 Lenders of student loans are specifically exempted from the Fair Debt Collection Practices Act.

1999 The statues of limitations are removed from license debt created from student loans.

Student loans 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 interest rates.

Student loan collection rights include the right to garnish wages, tax refunds, Social Security payments and disability payments.

Why I Defaulted on My Student Loans

Who got rich off the student debt crisis

2000 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 wrongdoing but agrees to pay a $2 million fine.

2005 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 Freddie Mac.

Fannie Mae pays a fine of $400 million for alleged accounting manipulations and lying to investors. Earnings are reduced by $6.3 billion.

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 D'Amato.

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 consultants."

After nationalization, Fannie and Freddie own 90% of US housing loans.

2007 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 risk.

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 deal.

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.

The takeover was triggered by credit default swap derivative contracts.

In credit default swap parlance this is termed a credit event.

It triggers 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.

Financial 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 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 Corn

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 credit default 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.

About 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 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.

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 billion.

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 settlement.

2009 David Kellermann, CFO of Freddie Mac, commits suicide.

Freddie 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.

The incorporation also takes a charge of $8.3 billion for now-worthless tax credits.

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