How long have MBS been around?

 A friend asked me some questions about Mortgage Backed Securities…one thing he asked was. How long have they been around?  He was surprised that most of my trading of MBS within our Hedge Fund was in the early ‘90s.  Many think this is something relatively new to the world markets.

So how long have Mortgage Backed Securities (MBS) been around? You could say 71 years…thank you FDR.

In 1938, a governmental agency named the National Mortgage Association of Washington was formed and soon was renamed Federal National Mortgage Association (FNMA or Fannie Mae). It was chartered by the US government as a corporation which buys Federal Housing Administration (FHA) and Veterans Administration (VA) mortgages on the secondary market, pools them, and sells them as “mortgage-backed securities” to investors on the open market. FNMA was later privatized.

Certain old-time Wall St. traders and Lawrence White of the Stern School of Business at NYU says 1970 is when the first MBS was sold.

From its beginning, the issuance of MBS in the U.S. has been dominated by governmental and quasi-governmental entities, although “private label” MBS have been growing in relative importance after a late and slow start. The experience of MBS in the U.S. began in 1970, with MBS issued by Ginnie Mae. Freddie Mac, newly created in 1970, issued its first MBS in 1971. Fannie Mae, though in existence since 1938, issued its first MBS in 1981. Finally, the first “private label” MBS was issued in 1977, by Bank of America.

Lets go with the 1970 number, that means that MBS have been around for 39 years

Did the government create MBS?

MBS are a result of government monkeying around in the home loan market. Ginnie Mae stands for the Government National Mortgage and is a government Agency. Fannie Mae was a government agency that was created in 1938 and was later turned into a government sponsored entity and Freddie Mac was a late comer to the game but is similar in nature to Fannie Mae. According to Professor Lawrence White the first MBS was sold by a government agency, Ginnie Mae.

Second the government, through Ginnie Mae, and also implicitly through Fannie Mae and Freddie Mac guarantee home loan payments.

In 2007 government MBS were almost 8 times that of non-government MBS…enough said.