When a Mortgage Is Like a Hurricane

Sometimes a market needs to be big.

Mortgages and Hurricanes

Mortgages

Currently a private corporation chartered by the Congress, in 1938 Fannie Mae began as a federal agency. A part of her mission was to move money. At the time, because of the 1927 McFadden Act, interstate banking was prohibited. As a result, there was insufficient money for mortgages in one region and too much unused mortgage money elsewhere. By buying mortgages from banks and brokers, Fannie Mae was able to move money to areas that needed it. Meanwhile, by selling the mortgages she purchased, she could attract funding from the areas that had it to lend.

Hurricanes

During an emergency money also moves from areas that have it to those that need it. Here, we can specifically talk about the federal budget. Implemented by FEMA (Federal Emergency Management Agency), during natural disasters, you might receive an immediate payment to pay for food or larger amounts of assistance. It is also possible that FEMA will refer you to the Small Business Administration’s disaster loan program where businesses, and homeowners, and renters can get low interest loans. As with Fannie Mae, the key here is the nation as the source of FEMA funding.

Our Bottom Line: A National Market

Our message today is the value of a national market.

Because the United States is large and geographically diverse, during the 19th century, our economy grew. Increasingly connected by a transportation infrastructure, a national market emerged. As a result, the West could sell its grain to the Northeast and the South could grow cotton. In return New England and the Mid-Atlantic took care of manufacturing.

Somewhat similarly, when different regions experience distress from natural disasters, recovery funds come from the country’s coffers. Then, as banks work with Fannie Mae and insurance companies pay for disaster recovery, we move from the federal government to the market’s financial intermediaries. Together, public and private institutions move money from those that have it to the individuals and businesses that need it.

My sources and more: As a long time Econtalk listener, I originally got my Fannie Mae information from this podcast. Then, this website gives a Fannie Mae factual update. Next, complementing the mortgage information,  FEMA facts are here and here.