Fannie Mae's Human Resource Management Policies|Human Resource|Organization Behavior|Case Study|Case Studies

Fannie Mae's Human Resource Management Policies

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Case Details:

Case Code : HROB038
Case Length : 16 Pages
Period : 1999 - 2003
Pub Date : 2003
Teaching Note :Not Available
Organization : Federal National Mortgage Association
Industry : Mortgage Financing
Countries : USA

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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.

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Background Note

Fannie Mae's history dates back to the late-1930s. The Federal government's decision to help American's own homes, and the unwillingness of private lenders to ensure a reliable supply of mortgage credit across the nation led to the creation of Fannie Mae. Fannie Mae was established in February 1938 to facilitate the constant flow of mortgage money by creating a secondary market for the same.4

Initially, the company was only authorized to buy mortgages that were insured by the Federal Housing Administration (FHA). Later, in 1994, it was also allowed to buy loans guaranteed by the Veteran's Administration.5

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By the Charter Act of 1954, the government made Fannie Mae a mixed-ownership company, owned partly by private shareholders. Under this Act, though, the company still remained under the direct control of the government, the Act removed government backing for the borrowings used to fund the secondary market operations and stipulated that the company be exempt from all local taxes (except property taxes).

In 1968, the Charter Act of 1954 was amended and Fannie Mae was established as a government-sponsored private, shareholder-owned company. The amended Act authorized the company to issue mortgage-backed securities (MBS). It also allowed Fannie Mae to buy mortgages beyond traditional government loan limits, thus allowing it to reach to a broader cross-section of Americans. The company was freed from the direct control of the government. But to ensure that Fannie Mae adhered to its public purpose, the Act required it to operate under a Congressional charter.

Fannie Mae was listed on the New York and Pacific Stock Exchanges in 1970. In 1972, the company made its first conventional mortgage6 purchase, which, according to analysts, marked the beginning of a national secondary market for conventional mortgages. In 1981, David O. Maxwell (Maxwell) became the Chairman and CEO of Fannie Mae. Under Maxwell, the company soon entered many new business segments of the mortgage market such as adjustable-rate mortgages (ARMs), second mortgages and MBS. In 1984, Fannie Mae also entered foreign capital markets.

During the early 1990s, the company intensified its efforts to offer housing opportunity to people from all communities in the US.

Excerpts >>

4] The primary mortgage market is where mortgages originate and funds are lent to borrowers. Primary mortgage market lenders included mortgage companies, commercial banks, savings and loans, credit unions and state and local housing finance agencies. Secondary mortgage market is where mortgages are bought and sold by various investors. Here, lenders do not lend money directly to borrowers - they buy mortgages from primary market lenders. Major secondary market investors besides Fannie Mae were pension funds, securities dealers, insurance companies and other financial institutions.

5] The Veteran's Administration was established in 1930 by the US government to consolidate and coordinate government activities affecting war veterans. This body included The Veterans Bureau, the Bureau of Pensions of the Interior Department, and the National Home for Disabled Volunteer Soldiers. The Veteran's Administration also guaranteed mortgage loans for veterans and service persons. It, thus helped them obtain favorable loan terms for their home loans.

6] A conventional mortgage is a mortgage that is not insured or guaranteed by the government.


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