Federal National Mortgage Association (FNMA)

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.

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

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

### What is the primary purpose of Fannie Mae? - [ ] To reduce property taxes. - [ ] To provide homeowners with low-interest loans directly. - [x] To enhance liquidity in the mortgage market. - [ ] To regulate mortgage interest rates. > **Explanation:** Fannie Mae's primary purpose is to enhance liquidity in the mortgage market by purchasing mortgages from lenders and reselling them to investors. ### When was Fannie Mae established? - [x] 1938 - [ ] 1913 - [ ] 1968 - [ ] 2008 > **Explanation:** Fannie Mae was established in 1938 during the Great Depression to enhance the availability of mortgage capital. ### What percentage of Fannie Mae’s stock is owned by the government as of the 2008 conservatorship? - [ ] 25% - [ ] 50% - [x] 80% - [ ] 100% > **Explanation:** As of the 2008 conservatorship, the U.S. government owns 80% of Fannie Mae’s stock. ### Which agency primarily oversees the operations of Fannie Mae? - [ ] Federal Reserve - [ ] U.S. Department of Housing and Urban Development (HUD) - [x] Federal Housing Finance Agency (FHFA) - [ ] Treasury Department > **Explanation:** The Federal Housing Finance Agency (FHFA) is the primary agency overseeing Fannie Mae's operations. ### Which of the following is NOT a function of Fannie Mae? - [x] Issuing private loans to consumers. - [ ] Purchasing mortgages from lenders. - [ ] Securitizing mortgages into MBS. - [ ] Reselling mortgages to investors. > **Explanation:** Fannie Mae does not issue private loans to consumers. Its roles include purchasing mortgages from lenders, securitizing them, and reselling them to investors. ### How does Fannie Mae support affordable housing? - [ ] Increasing mortgage lending standards. - [ ] Decreasing down payment requirements directly. - [x] Purchasing and securitizing FHA-backed loans. - [ ] Providing direct loans to low-income families. > **Explanation:** Fannie Mae supports affordable housing by purchasing and securitizing FHA-backed loans, which increases the availability and affordability of home mortgages. ### What type of mortgages does Fannie Mae mostly package? - [ ] Jumbo loans. - [x] FHA-backed mortgages. - [ ] Interest-only loans. - [ ] Private equity mortgages. > **Explanation:** Fannie Mae mostly packages FHA-backed mortgages, helping to support government-insured lending programs. ### Regarding Fannie Mae, what does the term ‘conservatorship’ imply? - [x] Government control of operations. - [ ] Privatization and sale. - [ ] Closure of the enterprise. - [ ] Merger with Freddie Mac. > **Explanation:** ‘Conservatorship’ implies that the government has taken control of Fannie Mae’s operations to stabilize it and ensure continued support in the mortgage market. ### What crisis led to Fannie Mae being placed under conservatorship? - [ ] The Dot-com bubble burst. - [ ] The Oil Crisis. - [x] The Financial Crisis of 2008. - [ ] The Great Recession. > **Explanation:** The Financial Crisis of 2008 led to Fannie Mae being placed under conservatorship due to its critical role in the housing market and the need to stabilize the financial system. ### Which entity originally charters Fannie Mae? - [ ] The Department of the Treasury. - [ ] The Federal Reserve. - [x] The U.S. Congress. - [ ] The World Bank. > **Explanation:** Fannie Mae was chartered by the U.S. Congress in 1938 to enhance liquidity and support the mortgage market.

Thank you for exploring the intricacies of the Federal National Mortgage Association (FNMA) and engaging with our insightful quiz to enhance your understanding of its role in the real estate and financial markets!