The Fateful History of Fannie Mae: New Deal Birth to Mortgage Crisis Fall

by James R. Hagerty

In 1938, the administration of Franklin Delano Roosevelt created a small agency called Fannie Mae. Intended to make home loans more accessible, the agency was born of the Great Depression and a government desperate to revive housing construction. It was a minor detail of the New Deal, barely recorded by the newspapers of the day. Over the next seventy years, Fannie Mae evolved into one of the largest financial companies in the world, owned by private shareholders but with its nearly $1 trillion of debt effectively guaranteed by the government. Almost from the beginning, critics repeatedly warned that Fannie was an accident waiting to happen. Then, in 2008, the housing market collapsed. Amid a wave of foreclosures, the company's capital began to run out, and the U.S. Treasury seized control. From the New Deal to the administration of President Obama, author James R. Hagerty explains this fascinating but little-understood saga. Based on his reporting for the Wall Street Journal, personal research and interviews with executives, regulators and congressional leaders, Hagerty charts the course of Fannie Mae. With The Fateful History of Fannie Mae, he explains the politics, economics and human frailties behind seven decades of missed opportunities to prevent a financial disaster.

Genres: History

224 pages, Hardcover

First published September 3, 2012

Reviews

[Frank Stein · Rating 3 out of 5]

This is obviously an interesting article that became stretched into a not-so-interesting book.

The first part, on the creation of Fannie Mae and its gradual growth up until about 1992, is the more informative. For instance, the author cites an interview with Joseph Califano, President Johnson's close aid, explaining how they hoped that the semi-privatization of Fannie in 1968 would make it a "hive that attracted the private-money bees," but mostly the goal was just to get Fannie's debt off the Vietnam-burdened budget. The author also cites papers showing how the Nixon administration muscled the new company's president, Raymond Lapin, out when he refused to offer lucrative foreclosure business to Republican lawyers.

As this indicates, long after "privatization," politics at the company was rampant. As early as 1977, due to a new threat, this time from the Carter administration, to fire Fannie's president, Oakley Hunter, the company reached an agreement with the government to make at least 30% of its investments in low or moderate cost housing, long before this became required by statute (and this despite a few painfully cheesy attempts by Hunter to bring flowers and chocolate to HUD Secretary Patricia Harris). In the 1980s, the few attempts to rein Fannie in were met with a run around to Congress. When HUD Secretary Pierce tried to restrict their investments in the new REMIC securities, the company had bills introduced to take away his authority. When the administration tried to impose new "user fees" on those who purchased its mortgage bonds, Fannie got an Act amending its charter to prevent the practice. Any attempt to regulate or control it was thwarted by its army of lobbyists.

The more modern stuff on Fannie was related much better and more convincingly by Gretchen Morgenson in her book "Reckless Endargement," and there is little need for a plodding recap of that era such as is provided in this book. Still, the work on its early years is an original look at this important institution.

[Viktor Nilsson · Rating 4 out of 5]

Not a very exciting read, but readable non the less. Fannie Mae and Freddie Mac are two of the world's largest companies. For most of their obscure lives, they have also been two of the least well-known. This book does a good job in examining the politics that put these entities into existence and allowed them to grow to such immense proportions. Hagerty takes the reader on a journey through a strange regulatory environment providing Fannie & Freddie with the benefits of both private and public ownership at the same time, a situation which in 2008 instead turned into the worst of both spheres.

This book is readable for several reasons:
-It describes an integral, yet often overlooked part of the US economy
-It is well written and should be understandable for anyone who has at least some basic understanding of finance or economics. It is an easy yet informative read on a complicated subject.
-It does a superb job in portraying highly political issues in a well-balanced way
-Finally, despite what you may think: Fannie and Freddie are still around, more important than ever. Or how about owning or guaranteeing $5 trillion worth of mortgages, half of the whole US market?

[Paa · Rating 4 out of 5]

A creation from FDR, started to assist many to achieve the American dream, morphed and degraded into an expensive dependent of present day tax payers. Well-written and understandable history of an US governmental affiliated agency that grew too strong and arrogant for any meaningful regulation. The book does not have a political bias. Politicians of both major parties supported Fannie Mae. It was a financial boon to many political insiders but an eventual nightmare for many homeowners. The author is a long term reporter of the Wall Street Journal.

[Mills College Library]

332.72097 H144 2012