Fannie Mae-No Politics (FNMA)

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Here's a history lesson:

"During the Great Depression, as borrowers defaulted on mortgages en masse and banks found themselves strapped for cash, President Franklin D. Roosevelt and Congress created Fannie Mae in 1938 in order to buy mortgages from lenders, freeing up capital that could go to other borrowers. Although Fannie Mae began with just $1 billion in purchasing power, the agency helped usher in a new generation of American home ownership, paving the way for banks to loan money to low- and middle-income buyers who otherwise might not have been considered creditworthy."

http://www.time.com/time/business/article/0,8599,1822766,00.html


Bottom line, if Congress ever tries to completely eliminate FnF, banks will be forced to keep mortgages on their balance sheet. Therefore, their capital will decrease significantly. What does this mean? Sky-high interest rates, which a majority of the country cannot afford. Housing would stall significantly and likely completely, followed by another recession. Never mind that nearly $500 billion of private capital would need to be raised to backstop the mortgages, prior to a FnF wind-down. Highly unlikely to happen anytime soon given the climate of this fragile economic recovery.