Definition
The Federal National Mortgage Association (FNMA), widely known as Fannie Mae, is a publicly owned Government-Sponsored Enterprise (GSE) created in 1938. It aims to facilitate the flow of capital in the mortgage market by purchasing mortgages from lenders and reselling them to investors. Fannie Mae plays a critical role in expanding the availability and affordability of home mortgages.
Key Facts and Functions
- Charter and Purpose: Chartered in 1938 during the Great Depression to provide liquidity, stability, and affordability in the mortgage market.
- Operations: Primarily packages mortgages backed by the Federal Housing Administration (FHA) but also sells some nongovernment-backed mortgages.
- Conservatorship: On September 6, 2008, amidst the financial crisis, Fannie Mae was placed under U.S. government conservatorship. The government, through the Federal Housing Finance Agency (FHFA), owns 80% of its stock and oversees its operations.
Examples
- Mortgage Securitization: Fannie Mae buys a portfolio of mortgages from a bank, bundles them into mortgage-backed securities (MBS), and sells these MBS to investors, thereby enabling the bank to issue more mortgages.
- Affordable Housing Programs: By purchasing and securitizing FHA-backed loans, Fannie Mae helps lower-income families secure housing.
- Response to Economic Crisis: During the 2008 financial crisis, Fannie Mae was placed under conservatorship to stabilize the housing market and ensure continued liquid access to mortgage credit.
Frequently Asked Questions (FAQs)
What is the main role of Fannie Mae?
Fannie Mae’s primary role is to ensure that mortgage funds are available and affordable by purchasing mortgages from lenders and reselling them to investors.
How does Fannie Mae differ from Freddie Mac?
Although both are GSEs, Fannie Mae buys mortgages from larger commercial banks, whereas Freddie Mac buys them from smaller banks and credit unions.
Why was Fannie Mae placed under conservatorship?
Fannie Mae was placed under conservatorship in 2008 to stabilize the mortgage market during the financial crisis. The U.S. government took control to prevent insolvency and ensure liquidity in the housing finance system.
How does Fannie Mae impact homebuyers?
By purchasing and securitizing mortgages, Fannie Mae provides lenders with the capital to issue more mortgages, which can expand homebuyers’ access to mortgage credit and improve affordability.
Who oversees Fannie Mae?
The Federal Housing Finance Agency (FHFA) oversees Fannie Mae, ensuring it operates in a safe and sound manner and fulfills its public mission.
Related Terms
- Government-Sponsored Enterprise (GSE): Financial services corporations created by Congress to enhance the flow of credit to specific sectors of the American economy.
- Federal Housing Administration (FHA): A government agency that provides mortgage insurance on loans made by FHA-approved lenders.
- Mortgage-Backed Securities (MBS): Investments secured by mortgages, often sold by GSEs like Fannie Mae to provide liquidity in the mortgage market.
- Federal Housing Finance Agency (FHFA): A U.S. government agency that regulates and oversees Fannie Mae, Freddie Mac, and the Federal Home Loan Banks.
Online References
- Federal Housing Finance Agency (FHFA)
- Fannie Mae Official Website
- U.S. Securities and Exchange Commission (SEC) filings for Fannie Mae
- Congressional Research Service Reports on Fannie Mae
Suggested Books for Further Studies
- The Fateful History of Fannie Mae: New Deal Birth, a Financial Crisis, and the Future Of Housing In America by James R. Hagerty.
- Fannie Mae and Freddie Mac: Turning the American Dream into a Nightmare by Oonagh McDonald.
- Financing the American Dream: A Cultural History of Consumer Credit by Lendol Calder.
Fundamentals of Federal National Mortgage Association (FNMA): Real Estate Basics Quiz
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