Fannie Mae: The Ultimate Loan Owner?

Fannie Mae is a government-sponsored enterprise that does not directly lend money to borrowers. Instead, it purchases mortgage loans from lenders, allowing them to extend credit to more people. They are one of the largest purchasers of mortgages on the secondary market, and they package these loans into mortgage-backed securities (MBS), which are then sold to investors. Fannie Mae also guarantees payments on its MBSs, which helps maintain a stable, affordable, and efficient mortgage market in the United States. In 2022, they helped 542,740 people buy their first homes and 2.6 million households buy, refinance, or rent a home. They also provide resources and education to help low- and middle-income Americans achieve homeownership.

Fannie Mae's role in the US housing finance system

The US government established Fannie Mae in 1938 to help ensure a reliable and affordable supply of mortgage funds throughout the country. It was created to address the housing market's weakening during the Great Depression, which saw 20-25% of the nation's outstanding mortgage debt in default by 1933.

Fannie Mae also helps stabilise mortgage markets and protect housing during stressful periods in the broader financial system. It does this by supporting mortgage lending that finances affordable housing, reducing the cost of borrowing for individuals and families buying homes. Fannie Mae also offers tools and resources to help renters and prospective homeowners navigate the rental and homebuying processes, including a free online course for first-time homebuyers.

Fannie Mae and its counterpart Freddie Mac are Government-Sponsored Enterprises (GSEs) that are required to meet "affordable housing goals" set annually by the Department of Housing and Urban Development (HUD). These goals include improving homeownership for low and middle-income families and underserved areas. To achieve these goals, Fannie Mae buys mortgages from banks, credit unions, and lenders, giving financial institutions the ability to continue extending credit.

How Fannie Mae creates liquidity for lenders

As a government-sponsored enterprise, Fannie Mae creates liquidity for lenders by investing in the mortgage market. It does not originate mortgage loans. Instead, it keeps funds flowing to lenders by purchasing or guaranteeing mortgages issued by credit unions, banks, thrifts, and other financial institutions. This allows lenders to underwrite or fund additional mortgages. In the first three quarters of 2024, Fannie Mae provided $274 billion in liquidity to the mortgage market.

Fannie Mae purchases mortgages that meet standard criteria. These mortgages are then pooled to create packages of mortgage-backed securities (MBS). These securities are purchased as investments by large institutional buyers such as insurance companies, pension funds, and investment banks. By attracting these investors to the secondary mortgage market, Fannie Mae expands the pool of funds available for housing, making the market more liquid and helping to lower interest rates for homeowners and other mortgage borrowers.

Fannie Mae was established by the U.S. Congress in 1938 as part of Franklin Delano Roosevelt's New Deal. Its explicit purpose was to provide local banks with federal money to finance home loans and raise levels of home ownership and the availability of affordable housing. In 2022, Fannie Mae helped 542,740 people buy their own homes for the first time and helped 2.6 million households buy, refinance, or rent a home.

The types of loans that Fannie Mae purchases

Fannie Mae was established by the US Congress in 1938 as an amendment to the National Housing Act. Its purpose was to provide local banks with federal money to finance home loans and raise levels of home ownership and the availability of affordable housing.

Fannie Mae does not originate mortgage loans or lend money directly to borrowers. Instead, it purchases mortgage loans made by lenders, who can then use those funds to offer mortgage loans to more people. It is one of the two largest purchasers of mortgages on the secondary market. The mortgages that Fannie Mae purchases and guarantees must meet strict criteria. For example, the FHFA limit for a conventional loan for a single-family home in 2025 is $806,500 for most areas and $1,209,750 for high-cost areas, including Hawaii and Alaska.

Fannie Mae's Single-Family business helps homebuyers purchase and refinance homes. It supports mortgage lenders by acquiring the mortgage loans they originate. It also offers a number of business initiatives and credit options to homeowners, working with lenders to help people who might otherwise have difficulties obtaining financing. For example, the HomeReady Mortgage product allows homeowners to secure financing and purchase a home with a low down payment.

Fannie Mae also has a Multifamily business that finances quality, affordable rental housing. It leverages private capital to finance multifamily housing and invests in Low-Income Housing Tax Credit (LIHTC) properties to help create and preserve affordable multifamily housing.

How Fannie Mae helps borrowers facing foreclosure

Fannie Mae, also known as the Federal National Mortgage Association, was created during the Great Depression to address the issues of the weakened US housing market. Due to the financial crisis, people lost their jobs and were unable to make payments, which led to an increase in foreclosures.

Fannie Mae works to facilitate equitable and sustainable access to homeownership and quality, affordable rental housing across America. It creates liquidity for lenders by investing in the mortgage market, allowing them to underwrite or fund additional mortgages. It also buys mortgages from banks, credit unions, and lenders, giving financial institutions the ability to continue extending credit.

Fannie Mae offers several programs to assist borrowers facing foreclosure. The Mortgage Help Network supports homeowners struggling with their Fannie Mae-owned mortgage payments. By working with a HUD housing counsellor, homeowners can explore options and effectively communicate with their mortgage servicer. The Tenant-In-Place Rental Program offers a solution for tenants in Fannie Mae-owned properties facing foreclosure. Additionally, loan modifications can be made to change the conditions of an existing mortgage and help borrowers avoid default and foreclosure. These modifications can include a lower interest rate and an extended loan term, resulting in lower monthly payments.

Fannie Mae also provides homebuying education, closing cost assistance, and other benefits to qualified buyers looking to purchase a foreclosed property through the HomePath ReadyBuyer program. The HomeReady program is designed for low-income individuals who want to buy a home, offering low down payments as low as 3%. Similarly, the Conventional 97 program allows for a 97% loan-to-value ratio, enabling buyers to make reduced down payments.

Fannie Mae's programs aim to make homeownership more accessible and affordable, especially for low- and middle-income families. By offering lower interest rates, reduced private mortgage insurance costs, and flexible loan terms, they help borrowers facing financial difficulties and reduce the risk of foreclosure.

The history of Fannie Mae

The Federal National Mortgage Association (FNMA), commonly known as Fannie Mae, is a United States government-sponsored enterprise (GSE) that was founded in 1938 during the Great Depression as part of Franklin Delano Roosevelt's New Deal. The New Deal was aimed at addressing the issues of the housing market at the time, which saw an estimated 20-25% of the nation in mortgage debt and a high number of foreclosures.

Fannie Mae was established by the U.S. Congress as the National Mortgage Association of Washington, with the explicit purpose of providing local banks with federal money to finance home loans. This helped to increase home ownership and the availability of affordable housing. In its first thirty years, Fannie Mae held a monopoly over the secondary mortgage market, buying Federal Housing Administration (FHA)-insured mortgages.

In 1950, Fannie Mae was acquired by the Housing and Home Finance Agency from the Federal Loan Agency as a constituent unit. Four years later, an amendment known as the Federal National Mortgage Association Charter Act changed Fannie Mae into a "mixed-ownership corporation", with the federal government holding preferred stock and private investors holding common stock. In 1968, it converted to a privately held corporation, and the predecessor of Fannie Mae was split into the current Fannie Mae and the Government National Mortgage Association ("Ginnie Mae").

Fannie Mae and Freddie Mac are similar in nature and work to stabilise the housing market by providing consistent access to mortgage funding. They also manage risk and are subject to oversight by government agencies to ensure safe and responsible operations. In 2008, both enterprises came under the conservatorship of the Federal Housing Finance Agency (FHFA) due to a substantial deterioration in the housing markets.

Frequently asked questions