And through these steps the governments foothold in

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And through these steps, the government’s foothold in mortgage finance was born. From its chartering in 1938 through the middle of the 1960s, Fannie Mae was a relatively minor presence in the overall residential market; its presence was more symbolic than substantive. The major institutional holders of residential mortgages during this period were S&Ls, commercial banks, and life insurance companies. Somewhat paradoxically, Fannie Mae grew the most on the back of the U.S. government only when the government began to “disown” it, but never fully. Here’s how. 1.3 Privatization of the GSEs By far, the most important legislation affecting Fannie Mae was its conversion into a private company in 1968. It was primarily for accounting purposes. The Johnson Administration wanted Fannie Mae privatized, so as to remove its debt from the federal government’s books, thereby reducing the size of the national debt. In addition, a change in federal budgeting procedures at the time would have counted Fannie Mae’s net purchases of mortgages as current government expenditures, which would have meant that those net purchases would have added to recorded federal budget deficits. This is clearly something that no presidential administration wants if it can avoid doing during its own term. The privatization meant that Fannie Mae was spun off to the private sector and became a publicly traded company, with its shares listed on the New York Stock Exchange (NYSE). However, Fannie Mae retained its federal charter and the special status and privileges that went with the charter. Fannie Mae also had its own special regulator: the Department of Housing and Urban Development (HUD), which had been created as a cabinet-level department in 1965 and retained some regulatory powers over Fannie Mae. Another prominent indicator of the specialness of Fannie Mae, despite its apparent structure as just another private (publicly traded) company, was the power of the President of the United States to appoint five board members to the Fannie Mae board of directors. No other company that was listed on the NYSE had presidential appointees on its board.
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16 Simultaneous with the spinning off of Fannie Mae into the private sector, the same 1968 legislation created the Government National Mortgage Association (GNMA, which was subsequently dubbed “Ginnie Mae”) within HUD as an agency that would securitize FHA- and VA-insured mortgages. And next to arrive on the scene was Freddie Mac in 1970. Ownership of Freddie Mac was placed with the Federal Home Loan Bank System, which was owned by the S&L industry. 4 Fannie Mae too received authorization to expand its mortgage purchases to encompass mortgages that were not insured by FHA or VA. However, both Fannie Mae and Freddie Mac were restricted (by HUD and the Bank Board, respectively) in the size of mortgage loan that they could purchase, either for securitization or for holding in their portfolios. This maximum loan size came to be known as the “conforming loan” limit. Mortgages that exceeded the conforming
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