What is 'Fannie Mae - Federal National Mortgage Association - FNMA'
Fannie Mae (FNMA) is a government-sponsored enterprise (GSE) that was created in 1938 to expand the flow of mortgage money by creating a secondary mortgage market. Fannie Mae is a publicly traded company which operates under a congressional charter that directs Fannie Mae to channel its efforts into increasing the availability and affordability of homeownership for low-, moderate- and middle-income Americans.
!--break--Congress created Fannie Mae to provide liquidity, stability and affordability to the mortgage market by purchasing and guaranteeing mortgages that meet its funding criteria. By purchasing and guaranteeing these mortgages, Fannie Mae increases the amount of loans available to homeowners who might not otherwise qualify.
Fannie Mae holds mortgages in its own portfolio or packages them into mortgage-backed securities (MBS). The market for Fannie Mae's MBS is large and liquid. Pension funds, insurance companies and foreign governments are among the investors in Fannie Mae's MBS. To promote homeownership, Fannie Mae also holds a large portfolio of its own and other institution's MBS, known as its retained portfolio. To fund the portfolio, Fannie Mae issues debt known in the marketplace as agency debt.
With Fannie Mae packaging mortgages into MBS and guaranteeing the timely payment of principal and interest on the underlying mortgages, investors who would not normally be interested are attracted to the secondary mortgage market. In turn, this increases the amount of money available for housing and consequentially improves liquidity and lowers interest rates.
To make loans more affordable to homebuyers, Fannie Mae also allows lower down payments and monthly costs. At the same time that these loans are available, the GSE still works to protect lenders by verifying income and credit history, and may even offer pre-purchase counseling. Fannie Mae also provides support to homebuyers throughout the mortgage process.
Fannie Mae's "little brother" is Freddie Mac. Depending on market conditions, on an annual basis, Fannie Mae and Freddie Mac purchase or guarantee about 40% to 60% of all mortgages that originate in the United States.
2008 Credit Crisis
When the housing bubble that lasted from 2001 to 2007 burst and the global financial crisis followed, many blamed the United States Congress and its unwillingness to rein in Fannie Mae and Freddie Mac. How much Fannie Mae contributed to the financial crisis has been a subject for debate, but the accusations go against one of Fannie Mae's goals to protect the housing industry in times of economic turmoil.