A:

Fannie Mae (the Federal National Mortgage Association, or FNMA) is a government-sponsored enterprise (GSE) established in 1938 to expand the flow of mortgage money by creating a secondary mortgage market. In September 2008, as the housing market crashed and hundreds of thousands of borrowers began to default on their mortgages, Fannie Mae and "little brother" Freddie Mac were taken over by the government (technically, a conservatorship of the Federal Housing Finance Agency) and received $187.4 billion in bailouts to remain solvent.

Under the previous agreement, Fannie Mae (and Freddie Mac) drew money from the Treasury Department as needed for its capital reserves, for which the companies issued preferred stock to the government on which they paid a 10% dividend. In August of 2012, the terms governing the company's dividend obligations changed so that Treasury claims all profits at the end of each quarter, and provides capital if either company has a quarterly loss. So even though Fannie Mae makes money, its profits are handed over each quarter to the government. As of March 2014, Fannie Mae and Freddie Mac had paid more in dividends to the U.S. Treasury than they had received since the 2008 bailout.

As secondary market participant, Fannie Mae does not lend money directly to consumers. Instead, it keeps liquidity flowing to mortgage lenders (e.g., credit unions, local and national banks, thrifts and other financial institutions) through the purchase and guaranty (for a fee) of mortgages made by these firms, which help ensure that families can buy homes, refinance existing mortgages, or find affordable rental housing. The loans are then packaged into Fannie Mae MBS (mortgage-backed securities) and sold to private investors worldwide. Since Fannie Mae guarantees timely payments of principal and interest, investors don't have to be concerned about credit risk. Fannie Mae also holds some loans and mortgage securities in its own investment portfolio.


RELATED FAQS
  1. How do you use the FNMA selling guide?

    Learn about Fannie Mae Selling Guide and find out details about how its parts provide support to the business relationship ... Read Answer >>
  2. Can I buy a house directly from Fannie Mae (FNMA)?

    Yes; you can buy homes directly from Fannie Mae. Fannie Mae (the Federal National Mortgage Association, or FNMA) is a government-sponsored ... Read Answer >>
  3. Are mortgage-backed securities backed by any guarantees?

    Actually, any mortgage-backed security (MBS) guarantee depends on who issued it.To review, an MBS is a security, created ... Read Answer >>
  4. What does FNMA stand for?

    Learn what FNMA is, how it helps low-, moderate- and middle-income families afford a place to live using mortgage liquidity, ... Read Answer >>
  5. What are the best ways to invest in mortgage-backed securities (MBS)?

    Find out how you can start investing in real estate through mortgage-backed securities. Read Answer >>
Related Articles
  1. Investing

    Should You Invest In Fannie Mae Stock?

    If you're risk-adverse, you might want to avoid investing in Fannie Mae. But if you're up for it, high risk could translate to high reward.
  2. Insights

    Fannie Mae, Freddie Mac And The Credit Crisis Of 2008

    Is the U.S. Congress' failure to rein in these mortgage giants to blame for the financial fallout?
  3. Investing

    Fannie Mae and Freddie Mac, Boon Or Boom?

    These two companies are crucial to the mortgage market, but are they ticking timebombs?
  4. Investing

    The Top 5 Fannie Mae Shareholders (FNMA)

    Find about the individuals, funds and companies that are top shareholders of Fannie Mae stock. Learn about their profiles and their relationships with Fannie Mae.
  5. Insights

    How Fannie Mae And Freddie Mac Were Saved

    These mortgage giants had to be put under government conservatorship, driving home the gravity of the subprime crisis.
  6. Personal Finance

    Why Fannie Mae And Freddie Mac Might Be In Trouble

    Fannie Mae and Freddie Mac are under increased scrutiny as debates continue about conservatorship, share price, and profit allocations.
  7. Personal Finance

    Trended Credit Data Could Increase Interest Rates for Borrowers (FNMA, EFX)

    Mortgage lenders will soon be required to use trended credit data to qualify borrowers. As a result, many borrowers could have to take higher interest rates.
  8. Small Business

    Remodeling The Housing Finance Industry

    The meltdown in mortgage-backed securities is bringing about reform in home financing.
  9. Insights

    Top 6 U.S. Government Financial Bailouts

    U.S. bailouts date all the way back to 1792. Learn how the biggest ones affected the economy.
  10. Investing

    PTRIX,FMSFX,VMBSX: Profiting Off of Increased Mortgage Rates

    Learn why mutual funds that invest in mortgage-backed securities (MBS) are worth a look for investors wanting to capitalize on rising mortgage interest rates.
RELATED TERMS
  1. Fannie Mae - Federal National Mortgage Association - FNMA

    A government-sponsored enterprise (GSE) that was created in 1938 ...
  2. Nonconforming Mortgage

    A mortgage that does not meet the guidelines of Government Sponsored ...
  3. Herbert M. Allison Jr.

    Became the president and CEO of Fannie Mae in 2008. Fannie Mae ...
  4. Conventional Mortgage

    A type of mortgage in which the underlying terms and conditions ...
  5. Dwarf

    A slang term used to describe a pool of mortgage backed securities ...
  6. Federal Housing Finance Agency - FHFA

    A U.S. government agency created by the Housing and Economic ...
Trading Center