The U.S. secondary mortgage market was established in 1938 by a single agency called the Federal National Mortgage Association. Fannie Mae, as the agency is commonly known, held a monopoly on the secondary mortgage market until 1968, when it was changed from a government controlled entity to a privately owned corporation, and some of its responsibilities were passed on to other organizations. Despite the re-organization, Fannie Mae essentially works the same as always – by purchasing mortgages from banks and other lenders and enabling investors to buy them as securities. Fannie Mae’s purchases of mortgage loans total more than $6.5 billion annually, and investors typically capitalize interest of more than 10 per cent on these loans. Fannie Mae’s 1968 re-organization produced several new agencies, examined below, and ended Fannie Mae’s function as the guarantor of government issued mortgages.

Fannie Mae’s responsibility for government issued mortgages was passed on to a new government owned corporation within the Department of Housing and Urban Development called the Government National Mortgage Association. Ginnie Mae, as it is commonly known, also pools mortgages into bonds from pre-approved lenders. In this process, Ginnie Mae allows lenders to issue bonds for its mortgages with a guarantee on repayment. In exchange, Ginnie Mae receives a guarantee fee, typically for less than one per cent of the loan. As of 2003, Ginnie Mae claimed to have guaranteed securities on homes for a total of more than $2 trillion.

The largest organizations in the secondary mortgage market also include the Federal Home Loan Mortgage Corporation (commonly known as Freddy Mac) and the Federal Agricultural Mortgage Corporation (known as Farmer Mac. These organizations both work in a manner similar to Fannie Mae’s, by buying mortgages from banks and other primary lenders, and providing liquidity and investment opportunity to the mortgage market.

The impact of groups like Fannie Mae, Ginnie Mae, Freddy Mac, and Farmer Mac could increase significantly if government lowered its regulations on this market. For example, a stimulus package being considered by government could allow Freddy Mac and Fanny Mae to buy many more mortgages by raising the value limit for Freddy Mac and Fanny Mae mortgages by more than 80 per cent.

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