The Federal National Mortgage Association commonly known as Fannie Mae, is a United States Government sponsored corporation created in 1938 to establish a secondary market for mortgages insured by the Federal Housing Administration (FHA). Fannie Mae buys mortgages on the secondary market, pools them and sells them as mortgage backed securities (MBS) to investors on the open market. . An MBS is an asset backed security where the assets are mortgages. They function in many ways like a bond. This secondary mortgage market helps to replenish the supply of lendable money for mortgages and ensures that money continues to be available for new home purchases. The name “Fannie Mae” is an acronym of the company’s name that has been adopted officially for ease of identification.
The “American Dream” has long been defined as home ownership and at Fannie Mae their slogan is “Our business is the American Dream”. Their mission is to help more families own their own home, by aiding the low, moderate and middle income families obtain loans to buy their own homes. A single entity until 1968, the Federal National Mortgage Association then split into two parts, one a wholly owned government business, (Government National Mortgage Association) GINNIE MAE, and the other which kept the Fannie Mae name. Fannie Mae extended its charter into buying non-government issued mortgages and became a private company in 1970. Even though it is no longer government sponsored, Fannie Mae has looser financial restrictions placed on it by the government than other lending institutions. Fannie Mae (and FREDDIE MAC) are the institutions which set the limits on conforming and non-conforming (jumbo) loans. They only purchase conforming loans.
Loans Funded by Fannie Mae
Fannie Mae offers a wide variety of mortgages through their network of lending partners. All are conforming loans. Some of their options are listed here:
- Adjustable Rate Mortgages
- Balloon Mortgages
- Employer Assisted Housing
- Fixed Rate Mortgages
- Home Construction and Renovation Loans
- No/Low Down Payment Options
- Reverse Mortgages for Seniors
- Special Financing
- Loans for People with Disabilities
- Native American Loans
- Rural Housing Loans
Fannie Mae works with its clients through its lending partners to find the lowest cost mortgage for which its clients can qualify. They also give their lending partners access to lending software tools to speed the mortgage process and reduce costs. Fannie Mae offers a wide variety of products so their client will have every opportunity to find a loan to fit their needs. Fannie Mae has links to their funding partners on their website for the customers’ convenience.
Recent Fannie Mae News
Fannie Mae has been in the news (2004) of late because of irregularities in their accounting practices. The difficulty centered on how to account for various interest rate hedges Fannie Mae buys as part of its risk management strategy. Fannie Mae contends the problem stems from a difference in interpretation of the Financial Accounting Standards Board’s rules, but when Fannie Mae did not release its third quarter results for 2004, doubts increased. In December 21, 2004, CEO Franklin Raines and CFO Timothy Howard were forced to resign. The company also dismissed its auditor, KPMG. This scandal has not , however affected its ability to fund or purchase loans.
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