About Fannie Mae
Fannie Mae was launched by President Franklin D. Roosevelt in 1938 in an effort to supply mortgages to millions of homeowners who were at risk for losing their homes during the war era.
Today, Fannie Mae provides financing to mortgage bankers and lending institutions so that home buyers can find affordable rates on their mortgage loans. Fannie Mae is owned and operated by the federal government, serving thousands of families and individuals interested in purchasing property in the U.S. housing market.
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Significance
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The Fannie Mae program is designed specifically for those who are struggling to find funds for buying a home, and is the leading source of funding for the U.S. secondary housing market. The Fannie Mae foundation and the Federal Home Loan Mortgage Corporation (Freddie Mac) guaranteed and owned nearly half of the U.S. mortgage market in 2008 and this number continues to grow as more people turn to lender financing to purchase a home.
Function
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Fannie Mae issues mortgage-backed securities (MBS), essentially guaranteeing a loan for investors. Fannie Mae works by providing funds for any lost loans that were either not paid by the borrower in full from the sale of a house and covers any missed payments from borrowers by guaranteeing bonds issued for a mortgage.
Fannie Mae sets specific guidelines and criteria for all loans it guarantees and allows banks to protect themselves from a potential loss; this helps a bank or financial institution issue more loans overall, which in turn enables more people to begin the home buying process. -
Considerations
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Fannie Mae is not the only lender involved in providing funding to the secondary loan market. The secondary market is also comprised of securities dealers, insurance companies and companies that offer pension funds. Since taxpayers are responsible for providing funding to the secondary market, Fannie Mae continues to receive funding and these mortgages can then be purchased from other financial institutions. This entire cycle supports the continued growth of Fannie Mae and other financial resources that perform in the secondary market.
Misconceptions
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Fannie Mae is not backed by direct government funding and the certificates issued are not a debt of the United States. There is ongoing speculation as to whether Fannie Mae is backed by an implied federal guarantee, but this is not the case. Fannie Mae works with lenders and financial institutions all over the United States and funds are only available to low-, middle- and moderate-income households.
Benefits
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The Fannie Mae foundation helps the United States housing market stay strong by supplying more money to banks and lending institutions. One of Fannie Mae's most popular products is the Reverse Mortgage program; this payment plan works by allowing homeowners to receive payments from a lender instead of the other way around.
The "Home Keeper" Reverse Mortgage program from Fannie Mae allows homeowners to purchase a home without monthly mortgage payments and is especially beneficial for senior citizens and the retired population. Fannie Mae makes home buying a possibility for low- to middle-income Americans.
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