How Does Fannie Mae Promote Homeownership?

There was a long term American Policy of promoting home ownership. The main aim was to make the financing of a new home as easy as possible for the homebuyer. Overtime, various financial institutions have been set up to promote homeownership such as Fannie Mae (The Federal National Mortgage Association). This government sponsored enterprise (GSE) was founded during the great depression by Congress, its aim was to stimulate the housing market by making more mortgages available to moderate-to-low income borrowers. They do not originate or provide mortgages to borrowers, they purchase already issued mortgages off the mortgage originators and guarantees them via the secondary mortgage market. Banks or mortgage originators who sold mortgages onto Fannie Mae had to abide by their rules, Fannie Mae prohibited lenders to engage in the practice of red lining. …show more content…
This is done mainly because of the reason of tackling with high default rates of that group of people’ (mbaskool, n.d). Fannie Mae soon began to demand that lending institutions they were dealing with portrayed evidence to prove that they were not engaging in the act of redlining. The new requirements enforced by Fannie Mae subsequently lead to lending institutions lowering their standards on granting loans and charging higher interest rates on loans. This in turn meant that technically Fannie Mae pushed lending institutions into a position of granting subprime loans and therefore had to accept lower standards on the loans it purchased off mortgage originators. This is where subprime lending began, eventually growing larger and larger until the property bubble burst in