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Highlights
- Established in 1938, Fannie Mae is a government-sponsored corporation that enhances mortgage liquidity.
- It purchases mortgages from lenders and resells them as mortgage-backed securities to investors.
- Fannie Mae deals in both government-backed and nongovernment-backed mortgages.
The Federal National Mortgage Association, commonly known as Fannie Mae, was established in 1938 as a government-sponsored corporation to address the challenges of the housing market and ensure a steady supply of affordable mortgage funds. Initially created as part of President Franklin D. Roosevelt's New Deal, Fannie Mae aimed to increase homeownership by expanding the availability of mortgage credit throughout the United States.
As a publicly owned entity, Fannie Mae purchases residential mortgages from lenders, such as banks and credit unions, providing these financial institutions with the liquidity needed to issue new loans. By acquiring these mortgages, Fannie Mae helps maintain a stable flow of funds into the housing market, enabling more Americans to become homeowners.
One of Fannie Mae's primary functions is to package purchased mortgages into mortgage-backed securities (MBS), which are then sold to investors. These securities are attractive to investors because they offer a relatively stable return, backed by the monthly mortgage payments from homeowners. The creation of MBS helps distribute mortgage risk and attracts capital from a broad range of investors, including pension funds, insurance companies, and international entities.
Fannie Mae handles mortgages backed by the Federal Housing Administration (FHA), as well as those supported by the Department of Veterans Affairs (VA) and the United States Department of Agriculture (USDA). Additionally, it participates in the conventional mortgage market by buying loans that are not government-backed, often referred to as "conforming loans" due to their adherence to Fannie Mae's underwriting standards.
The organization plays a critical role in promoting liquidity, stability, and affordability within the U.S. housing finance system. By offering lenders a reliable outlet for selling mortgages, Fannie Mae helps ensure that mortgage credit remains accessible, even during economic downturns. Its operations have contributed to the development of a more robust secondary mortgage market, which in turn supports the broader economy.
Conclusion
Fannie Mae has been instrumental in shaping the U.S. housing market by providing liquidity, enabling affordable homeownership, and fostering financial stability. Through its purchase of mortgages and issuance of mortgage-backed securities, Fannie Mae continues to be a cornerstone of the American housing finance system.
