Short answer. The Housing and Urban Development Act of 1968 split Fannie Mae into a private corporation and the new Ginnie Mae federal agency, expanded HUD subsidy programs, and laid the foundation for modern U.S. mortgage securitization.
The Housing and Urban Development Act of 1968 was one of the most consequential pieces of housing legislation in U.S. history. Signed by President Lyndon Johnson in August 1968 — five months after his March 31 announcement that he would not seek re-election — the Act reshaped both housing finance and federal housing policy.
The Fannie Mae split
The Act split the existing Federal National Mortgage Association into two entities:
- Fannie Mae — Privatized as a federally-chartered (but privately-owned) corporation, focused on conventional secondary-market activity.
- Ginnie Mae — A new wholly-owned federal agency, focused on FHA-insured and VA-guaranteed loans.
The first agency MBS
The Act provided the legal framework for Ginnie Mae to issue mortgage-backed securities. The first Ginnie Mae pass-through MBS was issued in February 1970 — the technical start of modern U.S. mortgage securitization. Freddie Mac would be created in 1970 specifically to extend securitization to conventional loans.
HUD subsidy programs
The Act created or expanded several housing subsidy programs:
- Section 235 — Interest-rate subsidies for low-income homebuyers, allowing mortgages as low as 1% interest for qualifying households.
- Section 236 — Rental-subsidy program for low-income tenants in privately-owned multifamily buildings.
- Section 8 — Foundation laid for what would become the dominant federal rental-assistance program.
The Fair Housing Act connection
The 1968 Act was passed in the same year as the Civil Rights Act of 1968 (April 1968), which included the Fair Housing Act prohibiting housing discrimination. Together, these two acts represent the most significant federal housing-policy expansion since the New Deal — and laid the foundation for the modern U.S. mortgage and rental systems.
Sources
U.S. Census Bureau Survey of Construction; National Association of Realtors Existing Home Sales report; Freddie Mac Primary Mortgage Market Survey; National Bureau of Economic Research Business Cycle Dating Committee.