Fannie Mae could buy mortgages from the South or West and sell them to investors in the capital-rich East. In addition, the secondary mortgage market helped smooth out discrepancies between capital-rich and capital-poor regions of the country. Once assured that they could easily turn these mortgages into cash if they needed to, lenders were more inclined to extend mortgage credit.

The secondary market Fannie Mae created also made private lenders confident about making FHA-insured mortgages, which some had been reluctant to do. Fannie Mae bought mortgages insured by the Federal Housing Administration (FHA) from these private lenders, and either kept them for its own portfolio or sold them to private investors. Fannie Mae's primary purpose was to establish a secondary mortgage market to rejuvenate original lenders such as mortgage banks, savings and loan associations, and commercial banks by stimulating enough cash flow to allow them to make new loans. The Depression had taken a heavy toll on private lending institutions.

The federal government took an interest in facilitating home mortgages as a way to invigorate the residential construction industry as well as to provide adequate housing for its citizens. Its name was changed three months later to the Federal National Mortgage Association, or FNMA, and it has been known as Fannie Mae ever since. But in February 1938, since no private associations had yet formed, the Federal Housing Administration chartered the National Mortgage Association of Washington to buy and sell mortgages. Title III of the Federal Housing Act of 1934 provided for the incorporation of private national mortgage associations to create a national secondary mortgage market. Regulated by the federal government, Fannie Mae is an unusual instrument in the American economy.ДЇederal Support of National Housing Market: 1930s-40sДЇannie Mae was originally designed to help relieve the nation's housing problems during the Depression. The one-time government agency has made a tremendous impact on the home finance industry since it was chartered by Congress in 1938. While holding $675 billion in assets, Fannie Mae also guarantees in excess of $700 billion in Mortgage-Backed Securities (MBS). Fannie Mae also works to stimulate housing and community development across the nation. It operates exclusively in the secondary mortgage markets, serving the single-family and multifamily housing markets. A shareholder-owned company, Fannie Mae is one of the largest corporations in America.

Fannie Mae, also known as Federal National Mortgage Association, is the largest nonbank financial services company in the world.

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