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.

  1. What does FNMA stand for?

    FNMA is the acronym and the stock market symbol for the Federal National Mortgage Association, commonly called “Fannie Mae.” ... Read Full Answer >>
  2. Do FHA loans have prepayment penalties?

    Unlike subprime mortgages issued by some conventional commercial lenders, Federal Housing Administration (FHA) loans do not ... Read Full Answer >>
  3. Can FHA loans be refinanced?

    Federal Housing Administration (FHA) loans can be refinanced in several ways. According to the U.S. Department of Housing ... Read Full Answer >>
  4. Can FHA loans be used for investment property?

    Federal Housing Administration (FHA) loans were created to promote homeownership. These loans have lower down payment requirements ... Read Full Answer >>
  5. Do FHA loans have private mortgage insurance (PMI)?

    he When you make a down payment from 3 to 20% of the value of your home and take out a Federal Housing Administration (FHA) ... Read Full Answer >>
  6. How many FHA loans can I have?

    Generally, the Federal Housing Administration (FHA) does not insure more than one mortgage per borrower. This is to prevent ... Read Full Answer >>
Related Articles
  1. Economics

    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.
  2. Insurance

    Fannie Mae and Freddie Mac, Boon Or Boom?

    These two companies are crucial to the mortgage market, but are they ticking timebombs?
  3. Personal Finance

    Wall Street History: Fannie And Freddie Are Bailed Out

    This week in financial history saw the first Chrysler bailout, the retirement of a superstar CEO and much more.
  4. Insurance

    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?
  5. Retirement

    Using Your IRA to Invest in Property

    Explain how to use an IRA account to buy investment property.
  6. Home & Auto

    7 Absolute No-Nos When Selling a Home

    Avoid these mistakes if you’re looking to make a quick and easy home sale.
  7. Home & Auto

    Economics of Owning a Rental Property

    Learn how to find suitably priced rental property and the right rent level. Determine what maintenance costs to expect and what tax breaks are available.
  8. Savings

    How Parents Can Help Adult Children Buy a Home

    Owning a home isn't easy thanks to stringent lending standards. Thankfully, there's ways parents can help their kids buy a home.
  9. Credit & Loans

    HARP Loan Program: Help for Underwater Mortgages

    If you are underwater on your mortgage, this program may be just what you need to help build up equity in your home.
  10. Insurance

    6 Reasons To Avoid Private Mortgage Insurance

    This costly coverage protects your mortgage lender - not you.
  1. Fannie Mae - Federal National Mortgage Association - FNMA

    A government-sponsored enterprise (GSE) that was created in 1938 ...
  2. Private Equity Real Estate

    A Definition of "Private Equity Real Estate" and how it applies ...
  3. Encumbrance

    A claim against a property by a party that is not the owner. ...
  4. Capitalization Rate

    The rate of return on a real estate investment property based ...
  5. Equity

    Equity is the value of an asset less the value of all liabilities ...
  6. Real Estate Investment Trust - REIT

    A REIT is a type of security that invests in real estate through ...
Trading Center