In 1938, Superman first flew into the comic books. The Xerox machine made its first copy. And the Federal National Mortgage Association bought its first mortgage.
Fifty years later, those three institutions remain imbedded in American life. In the case of Fannie Mae, as the mortgage association is more popularly known, that longevity has given about 8 million families the chance to own homes.
Since going into business in 1938, Fannie Mae has provided $400 billion of affordable mortgage money for single-family homes, condos, co-ops, apartments and manufactured houses.
In doing so, it has evolved from a taxpayer-supported government agency into a unique federally chartered, but privately-owned company that ranks as the nation`s third largest in terms of its $240 billion in assets.
As part of its mandate to serve low-, moderate- and middle-income buyers, the company cannot purchase loans above a maximum amount set each year by a formula established by Congress. For 1988, the loan limit on a single-family home is $168,700.
But the bulk of the company`s purchases falls far below the limit. In 1987, the average size of a mortgage purchased by Fannie Mae was $70,000.
Although Fannie Mae has helped house more than 24 million people in the last 50 years, it is not a household name. Its direct relationships are with primary lenders-mortgage bankers, thrifts and commercial banks-and seldom do home buyers know that Fannie Mae owns their mortgages.
In fact, the company said, the public often confuses Fannie Mae with Fannie May, the Midwest candymaker.
But in the world financial markets, Fannie Mae is a major player.
Because Fannie Mae`s business under its charter is restricted to home mortgage finance, the company is accorded federal agency status in its debt offerings, allowing it to borrow at slightly lower costs than other private corporations-a benefit that the company said is passed on to home buyers in the form of lower mortgage interest rates.
That debt financing is used to purchase mortgages on the secondary market, where primary lenders sell the mortgages they originate in order to free up more cash to originate more mortgages. Fannie Mae then either holds those loans in its own portfolio for profit or issues securities based on the value of those loans and earns a fee from investors for doing so.
In its first year, the company purchased 10,000 home mortgages worth $38 million. In 1987, the company purchased 1.1 million mortgages-4,250 every day- worth $77 billion.
For years, the 30-year, fixed-rate mortgage dominated Fannie Mae`s business. But regulatory changes in the housing finance system, interest rate volatility and increasing home buyer sophistication about mortgage finance have brought about a revolution in mortgage products and services in the 1980s.
Today, Fannie Mae buys more than 40 different mortgages, including fixed- rate loans of 10-, 15- and 20-year durations; balloon mortgages;
adjustable-rate loans that can be converted to fixed rates, or fixed-rate loans that convert to lower fixed rates; bi-weekly mortgages; and some FHA and VA loans.
Fannie Mae was created by the administration of Franklin D. Roosevelt as part of the Reconstruction Finance Corp. to help stimulate housing
construction in the Depression.
In 1954 it became a mixed-ownership company with some shares held by lenders doing business with Fannie Mae. In 1970, it became a private company when shareholders paid $216 million to the U.S. Treasury for the remaining government interest in the corporation.
Originally, Fannie Mae bought only mortgages insured by the Federal Housing Administration and in 1948 it was authorized to buy Veterans Administration mortgages as well. It was not until 1970, two years after Ginnie Mae-the Government National Mortgage Association-was created specifically to buy FHA and VA loans, that Fannie Mae was allowed to purchase conventional mortgages.
The secondary mortgage market has grown from an $80 billion a year business in 1979 to an estimated $315 billion in 1987.
Fannie Mae predicts that the secondary mortgage market will account for more than half of the anticipated $1.6 trillion in mortgage demand over the next 10 years.