Fannie Mae

Definition

Fannie Mae, or the Federal National Mortgage Association, is a government-sponsored enterprise that was created to expand the secondary mortgage market in the United States. By purchasing mortgages from lenders, Fannie Mae provides them with increased liquidity, allowing them to offer more loans to homebuyers. This helps make homeownership more accessible and affordable for a larger segment of the population.

5 Must Know Facts For Your Next Test

1. Fannie Mae was established in 1938 during the Great Depression to enhance the flow of credit for home mortgages.
2. Fannie Mae operates by buying loans from banks and lenders, providing them with capital that can be used to issue new loans.
3. Fannie Mae issues mortgage-backed securities, which allows investors to buy shares in pools of mortgages and receive income from the payments made by homeowners.
4. The company played a critical role during the 2008 financial crisis, needing government intervention to stabilize its operations due to significant losses in the mortgage market.
5. Fannie Mae's mission includes promoting access to affordable housing and supporting sustainable homeownership across various income levels.

Review Questions

• How does Fannie Mae contribute to the overall stability of the housing market?
  • Fannie Mae contributes to housing market stability by purchasing mortgages from lenders, which increases their liquidity. This process allows lenders to have more capital available for issuing new loans, ultimately increasing access to home financing for buyers. By providing a steady source of funding for mortgages, Fannie Mae helps ensure that there is consistent availability of credit in the housing market, which is crucial for its overall stability.
• Discuss the impact of Fannie Mae's actions during the 2008 financial crisis on its operations and regulatory changes.
  • During the 2008 financial crisis, Fannie Mae faced severe financial difficulties due to high default rates on the mortgages it held. This led to a government bailout and significant regulatory changes aimed at increasing oversight of its operations. The crisis prompted policymakers to reevaluate Fannie Mae's role in the housing market and implement measures intended to prevent similar failures in the future, emphasizing risk management and financial transparency.
• Evaluate how Fannie Mae's practices align with its mission to promote affordable housing in relation to current economic trends.
  • Fannie Mae's practices are designed to support its mission of promoting affordable housing, particularly during times of economic uncertainty. By providing liquidity in the mortgage market, it ensures that lenders can continue offering loans even when conditions tighten. Evaluating current economic trends, such as rising interest rates and housing shortages, reveals both challenges and opportunities for Fannie Mae. The organization must adapt its strategies to continue facilitating access to affordable housing while managing risks associated with fluctuating economic conditions.

Related terms

Freddie Mac: Freddie Mac, or the Federal Home Loan Mortgage Corporation, is another government-sponsored enterprise that, like Fannie Mae, buys mortgages to help stabilize the housing market.

Mortgage-Backed Securities: Mortgage-backed securities are investment products that are created by pooling together a number of mortgages and selling them as a single security, often backed by entities like Fannie Mae.

Secondary Mortgage Market: The secondary mortgage market is where existing mortgage loans are bought and sold, helping to provide liquidity and stability to the primary mortgage market.