"In virtually none of the coverage of the Bush administration's latest emergency action [nationalizing Fannie Mae and Freddie Mac] did anyone bother to tell the backstory. Fannie Mae, nee the Federal National Mortgage Association (FNMA), began life as a government invention. It was born 'nationalized' -- and it worked beautifully until it was privatized.
FNMA was part of the New Deal's trinity of housing agencies -- the other two being the Home Owners Loan Corporation and the FHA agencies that Roosevelt formed in order to literally create the modern mortgage system. Before the New Deal, there were no long-term, self-amortizing mortgages. The loan was due and payable at the end of the term -- usually five years -- and if you couldn't persuade a bank or savings-and-loan to roll it over, you lost the house. After foreclosures exploded during the Depression, Roosevelt invented a whole new system. FNMA's job was to buy approved mortgages from banks, to replenish their working capital, so that they could make more mortgages. As the biggest buyer, FNMA also maintained standards.
The system worked like a fine watch. Home-ownership rates soared. Loan standards were generous but not stupid. Nobody in the home mortgage business got filthy rich, and mortgage lenders hardly ever went broke. The government's bank insurance funds regularly turned a profit. And here's a quaint, archaic concept: It operated in the public interest."