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Fannie Mae (FNMA)



Fannie Mae makes homeownership affordable.

Photo: Don Bishop/Getty Images

What Is Fannie Mae?:

Fannie Mae is short for Federal National Mortgage Association (FNMA). It was created in 1938 to establish a secondary market for mortgages insured by the Federal Housing Administration(FHA). In 1968, Fannie Mae became a shareholder-owned company that coudl buy any mortgages, not just those insured by the government. It was even listed on the NYSE.

However, the subprime mortgage crisis overwhelmed FNMA's ability to guarantee all those bad loans. After many bailouts and attempts to keep FNMA solvent, the Federal Government nationalized the company and its stock became worthless. To find out more, see Fannie Mae, Freddie Mac and the Subprime Mortgage Crisis.

What Fannie Mae Does:

Fannie Mae buys mortgages from banks, a process known as buying on the secondary market. It then packages these into mortgage-backed securities, and resells them to investors on Wall Street. Fannie Mae also provides financing for development of affordable rental housing. A certain percentage of Fannie Mae's mortgages must serve low and moderate-income families.

How Fannie Mae Affects the U.S. Economy:

Before the crisis, Fannie Mae stimulated the housing market, which made up 10% of the economy before the crisis. By doing so, it created wealth for homeowners who received greater equity from higher-priced homes. Fannie Mae also allowed low and moderate income families to get a financial cushion beneath them, and a higher standard of living, in the form of home ownership.

Since the crisis, Fannie Mae keeps the housing industry on life support. As of 2010, housing only made up 2% of the economy. Fannie Mae and another similar government-owned enterprise, Freddie Mac, now guarantee 90% of all mortgages. In other words, banks (which lent to just about everyone with a pulse) now won't lend anyone without a government guarantee.

How Fannie Mae Affects You:

Fannie Mae helps you in two ways:

  1. If you are a homeowner, then Fannie Mae helps keep mortgage costs low by making funding for mortgages more readily available.
  2. If you qualify as a low or moderate income family, such as a teacher, police officer, firefighter or health care worker, Fannie Mae will provide you with a mortgage you couldn't otherwise afford.
(Article updated April 2, 2010)


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