About
Fannie Mae, or the Federal National Mortgage Association, is a government-sponsored enterprise (GSE) that was created by Congress in 1938 to increase liquidity in the mortgage market. Its primary function is to purchase mortgages from lenders and package them into mortgage-backed securities (MBS), which are then sold to investors. This process helps to free up capital for lenders so that they can originate more mortgages.
Fannie Mae was originally a government agency, but it was converted into a GSE in 1968 in order to help reduce the federal budget deficit. Despite being a GSE, Fannie Mae is publicly traded on the New York Stock Exchange (NYSE) and is one of the largest financial services companies in the world. It is a shareholder owned company headquartered in Washington, D.C.
Fannie Mae has been the subject of controversy in the past, particularly during the subprime mortgage crisis of 2008, which led to the government taking over the company in order to stabilize the housing market. Since then, Fannie Mae has returned to profitability and has paid back its bailout funds to the U.S. Treasury. However, the company remains subject to ongoing scrutiny and regulation by the government.
Key Features
- Government-sponsored enterprise. Fannie Mae is a government-sponsored enterprise (GSE) that was created by Congress in 1938 to increase liquidity in the mortgage market.
- Mortgage purchasing. Fannie Mae purchases mortgages from lenders and then packages them into mortgage-backed securities (MBS), which are then sold to investors. This helps to free up capital for lenders so that they can originate more mortgages.
- Publicly traded. Fannie Mae is publicly traded on the New York Stock Exchange (NYSE) and is one of the largest financial services companies in the world.
- Headquarters. Fannie Mae is headquartered in Washington, D.C.
- Role in the housing market. Fannie Mae plays a significant role in the U.S. housing market, as it provides liquidity to the mortgage market and helps to make homeownership more accessible.
- Government oversight. Fannie Mae is subject to ongoing scrutiny and regulation by the government, particularly since its role in the subprime mortgage crisis of 2008.
- Profitability. Fannie Mae has returned to profitability in recent years and has paid back its bailout funds to the U.S. Treasury.
- Social mission. Fannie Mae has a social mission to support affordable housing and increase access to homeownership for low- and moderate-income households.
Pros and Сons
Pros
- Provides liquidity to the mortgage market. Fannie Mae purchases mortgages from lenders and packages them into mortgage-backed securities, which helps to free up capital for lenders so that they can originate more mortgages.
- Increases access to homeownership. Fannie Mae's mission is to support affordable housing and increase access to homeownership for low- and moderate-income households.
- Publicly traded. Fannie Mae is publicly traded on the New York Stock Exchange, which means that investors can invest in the company and potentially earn returns on their investments.
- Profitable. Fannie Mae has returned to profitability in recent years and has paid back its bailout funds to the U.S. Treasury.
Cons
- Government-sponsored. Fannie Mae is a government-sponsored enterprise, which means that it is subject to government oversight and regulation. This can limit its flexibility and ability to make independent decisions.
- Controversial history. Fannie Mae has been the subject of controversy in the past, particularly during the subprime mortgage crisis of 2008, which led to the government taking over the company in order to stabilize the housing market.
- Uncertainty. As a publicly traded company, Fannie Mae is subject to market volatility and economic uncertainty, which can affect its profitability and stability.
- Risk of default. Fannie Mae's business model involves purchasing and packaging mortgages, which carries some risk of default. In the event of widespread mortgage defaults, Fannie Mae could suffer significant losses.
Products
Fannie Mae offers a variety of mortgage products to help increase access to homeownership for low- and moderate-income households. Here are some of the products offered by Fannie Mae:
- HomeReady Mortgage. This mortgage product is designed for low- to moderate-income borrowers and offers a low down payment option and flexible credit requirements.
- HomeStyle Renovation Mortgage. This mortgage product allows borrowers to finance the purchase or refinance of a home as well as the cost of renovations or repairs.
- DU Refi Plus. This program is designed to help homeowners who are current on their mortgage payments but owe more on their home than it is worth. It allows them to refinance their mortgage at a lower interest rate and potentially save money on their monthly mortgage payments.
- High Balance Loans. Fannie Mae offers high balance loans in areas with higher-than-average home prices. These loans have higher loan limits to help borrowers purchase homes in more expensive housing markets.
- Adjustable Rate Mortgages (ARMs). Fannie Mae offers ARM products that have a fixed interest rate for a set period of time before adjusting annually based on market conditions.
- Conventional Fixed-Rate Mortgages. Fannie Mae offers 15-, 20-, and 30-year fixed-rate mortgage products with a variety of down payment options.
Overall, Fannie Mae's mortgage products are designed to help make homeownership more accessible to a wide range of borrowers by offering flexible credit requirements, low down payment options, and other features that can make purchasing a home more affordable.
Reliability
Fannie Mae is generally considered to be a reliable and stable participant in the U.S. housing market, and its mortgage-backed securities are widely held by institutional investors, pension funds and other market participants. However, there have been times when Fannie Mae's reliability has been called into question.
During the subprime mortgage crisis of 2008, Fannie Mae was criticized for its involvement in the purchase and packaging of risky subprime mortgages, which ultimately contributed to the collapse of the housing market and the ensuing financial crisis. As a result, the government took over Fannie Mae in order to stabilize the housing market and prevent further damage to the economy.
Since then, Fannie Mae has returned to profitability and has implemented a number of reforms to improve its risk management practices and reduce the likelihood of future failures. However, as a government-sponsored enterprise, Fannie Mae remains subject to government oversight and regulation, which can limit its flexibility and ability to adapt to changing market conditions. Additionally, the housing market is inherently volatile, which means that there is always some degree of risk involved in investing in mortgage-backed securities or other housing-related assets. Overall, while Fannie Mae is generally considered to be a reliable participant in the housing market, investors should carefully consider the risks associated with any investment in this sector.
Funding a Loan
Funding a loan is the process of providing the necessary funds to complete a mortgage transaction. In the case underlying mortgages out of Fannie Mae, the funding process typically involves several key steps:
- Loan origination. The loan origination process involves the borrower applying for a mortgage with a lender who meets Fannie Mae's eligibility requirements. The lender will review the borrower's credit history, income, and other factors to determine if they meet Fannie Mae's underwriting standards.
- Loan approval. If the lender approves the borrower's application, they will submit the loan to Fannie Mae for approval. Fannie Mae will review the loan to ensure that it meets their eligibility criteria and underwriting standards.
- Loan purchase. If Fannie Mae approves the loan, they will purchase the loan from the lender and provide the necessary funds to complete the transaction. This frees up capital for the lender so that they can originate more mortgages.
- Loan servicing. After Fannie Mae purchases the loan, the lender will typically continue to service the loan on behalf of Fannie Mae. This includes collecting payments from the borrower, managing escrow accounts, and handling any customer service inquiries or issues that arise.
Overall, the funding process for a Fannie Mae loan is designed to ensure that the borrower has access to the necessary funds to purchase a home, while also the mortgage markets by providing the lender with the necessary liquidity to originate more mortgages. Fannie Mae's involvement in the process helps to increase access to homeownership and promote stability in the housing market.
Additional Services
In addition to its primary role in the mortgage market as a guarantor and investor in mortgage-backed securities, Fannie Mae also does mortgage loans and offers a number of additional services to support homeownership and affordable housing initiatives. Here are a few examples:
- Housing Counseling. Fannie Mae provides housing counseling services to help borrowers better understand the home buying process, prepare for homeownership, and manage their finances. These services are available through Fannie Mae's network of approved housing counselors.
- HomePath. Fannie Mae's HomePath program helps to promote the sale of foreclosed properties by offering incentives to home buyers and investors who purchase these properties. HomePath properties are typically sold at a discount to market value and may include additional incentives, such as low down payment requirements and flexible mortgage terms.
- Affordable Housing Initiatives. Fannie Mae is committed to increasing access to affordable housing for low- and moderate-income households. To achieve this goal, Fannie Mae has established several initiatives, such as the Low-Income Housing Tax Credit (LIHTC) program and the Multifamily Affordable Housing (MAH) program, which provide funding and support for the development of affordable housing units.
- Green Financing. Fannie Mae offers financing options for energy-efficient and environmentally sustainable homes and multifamily properties. These financing options can help borrowers save money on energy costs and reduce their environmental impact.
Overall, Fannie Mae's additional services are designed to support homeownership and promote affordable housing initiatives, while also encouraging sustainable and environmentally responsible practices in the housing market.
Terms and conditions
The terms and conditions of a Fannie Mae loan will depend on the specific product or program being used. However, there are some general terms and conditions that apply to most Fannie Mae loans, including:
- Eligibility Requirements. Fannie Mae has eligibility requirements that borrowers and properties must meet in order to qualify for a loan. These requirements include factors such as credit score, income, debt-to-income ratio, and the type of property being purchased.
- Loan Limits. Fannie Mae sets limits on the amount of money that can be borrowed for a single-family home, multifamily property, or other type of real estate. These limits vary by location and are based on the median home price in the area.
- Interest Rates. Fannie Mae loans typically have competitive interest rates, but the specific rate will depend on the borrower's credit score, income, and other factors.
- Mortgage Insurance. Fannie Mae may require borrowers to purchase mortgage insurance if they are unable to make a down payment of at least 20% of the purchase price.
- Loan Terms. Fannie Mae loans typically have 15- or 30-year terms, although other terms may be available depending on the program being used.
- Prepayment Penalties. Fannie Mae loans typically do not have prepayment penalties, which means that borrowers can pay off their loan early without incurring additional fees.
Overall, the terms and conditions of a Fannie Mae loan are designed to ensure that the borrower is able to purchase a home that they can afford, while also protecting the lender's investment and promoting stability in the housing market. It is important for borrowers to carefully review the terms and conditions of any loan they are considering and to work with a qualified lender who can help them understand their options and choose the best loan for their needs.
Fannie Mae vs Freddie Mac
Fannie Mae and Freddie Mac are both government-sponsored enterprises (GSEs) that play a key role in the US housing market and financial institutions. While there are many similarities between the two organizations, there are also some key differences:
- History and Structure. Fannie Mae was created in 1938 as a government agency, but was later privatized in 1968. Freddie Mac was created in 1970 as a competitor to Fannie Mae. While both companies are publicly traded, Fannie Mae operates as a shareholder-owned corporation, while Freddie Mac is structured as a government-controlled entity.
- Primary Focus. While both Fannie Mae and Freddie Mac operate in the secondary mortgage market, they have slightly different focuses. Fannie Mae primarily purchases loans from larger commercial banks, while Freddie Mac tends to purchase loans from smaller regional and community banks.
- Loan Limits. Fannie Mae and Freddie Mac have different loan limits. In 2023, the maximum conforming loan limit for a single-family home is $647,200 for Fannie Mae and $625,000 for Freddie Mac.
- Government Support. While both Fannie Mae and Freddie Mac are government-sponsored enterprises, they have different levels of government support. Fannie Mae does not have explicit government backing, while Freddie Mac has a line of credit with the US Treasury and is subject to oversight by the Federal Housing Finance Agency.
- Financial Performance. Fannie Mae and Freddie Mac have had different financial performance over the years. Fannie Mae experienced significant losses during the 2008 financial crisis and required a government bailout, while Freddie Mac was also bailed out but has since been profitable.
Overall, while there are many similarities between Fannie Mae and Freddie Mac, there are also some key differences in their history, structure, focus, and government support. It is important for borrowers mortgage lenders, and investors to understand these differences when evaluating their options in the mortgage market.
Fannie Mae vs Midland Mortgage
Fannie Mae and Midland Mortgage are two different entities that play different roles in the mortgage market. Here are some key differences between the two:
- Role in the Mortgage Market. Fannie Mae is a government-sponsored enterprise (GSE) that buys mortgages from lenders, securitizes them, and sells them to investors. Fannie Mae's goal is to promote homeownership and stability in the housing market. Midland Mortgage, on the other hand, is a mortgage servicer that collects payments from borrowers on behalf of the lender or investor.
- Ownership. Fannie Mae is a publicly-traded company that is owned by shareholders. Midland Mortgage, on the other hand, is a subsidiary of MidFirst Bank, a privately-owned bank based in Oklahoma.
- Products and Services. Fannie Mae offers a variety of mortgage products and services, including conventional loans, government-backed loans, and affordable housing initiatives. Midland Mortgage primarily services conventional and government-backed loans.
- Eligibility Requirements. Fannie Mae has eligibility requirements that borrowers and properties must meet in order to qualify for a loan. These requirements include factors such as credit score, income, debt-to-income ratio, and the type of property being purchased. Midland Mortgage does not set eligibility requirements, as it is a servicer rather than a lender.
- Customer Service. Fannie Mae does not interact directly with borrowers, as its role is to buy and sell mortgages from lenders. Midland Mortgage, on the other hand, is responsible for interacting with borrowers on a regular basis to collect payments, answer questions, and provide customer service.
Overall, while both Fannie Mae and Midland Mortgage are involved in the mortgage industry, they play different roles and have different focuses. Fannie Mae's primary goal is to promote homeownership and stability in the housing market, while Midland Mortgage's focus is on servicing loans and providing customer service to borrowers.
Fannie Mae vs Lakeview Loan Servicing
Fannie Mae and Lakeview Loan Servicing are two different entities that play different roles in the mortgage market. Here are some key differences between the two:
- Role in the Mortgage Market. Fannie Mae is a government-sponsored enterprise (GSE) that buys mortgages from lenders, securitizes them, and sells them to investors. Fannie Mae's goal is to promote homeownership and stability in the housing market. Lakeview Loan Servicing, on the other hand, is a mortgage servicer that collects payments from borrowers on behalf of the lender or investor.
- Ownership. Fannie Mae is a publicly-traded company that is owned by shareholders. Lakeview Loan Servicing is a privately-owned company.
- Products and Services. Fannie Mae offers a variety of mortgage products and services, including conventional loans, government-backed loans, and affordable housing initiatives. Lakeview Loan Servicing primarily services conventional and government-backed loans.
- Eligibility Requirements. Fannie Mae has eligibility requirements that borrowers and properties must meet in order to qualify for a loan. These requirements include factors such as credit score, income, debt-to-income ratio, and the type of property being purchased. Lakeview Loan Servicing does not set eligibility requirements, as it is a servicer rather than a lender.
- Customer Service. Fannie Mae does not interact directly with borrowers, as its role is to buy and sell mortgages from lenders. Lakeview Loan Servicing, on the other hand, is responsible for interacting with borrowers on a regular basis to collect payments, answer questions, and provide customer service.
Overall, while both Fannie Mae and Lakeview Loan Servicing are involved in the mortgage industry, they play different roles and have different focuses. Fannie Mae's primary goal is to promote homeownership and stability in the housing market, while Lakeview Loan Servicing's focus is on servicing loans and providing customer service to borrowers.
Fannie Mae vs 21st Mortgage
Fannie Mae and 21st Mortgage are two different entities that play different roles in the mortgage market. Here are some key differences between the two:
- Role in the Mortgage Market. Fannie Mae is a government-sponsored enterprise (GSE) that buys mortgages from lenders, securitizes them, and sells them to investors. Fannie Mae's goal is to promote homeownership and stability in the housing market. 21st Mortgage, on the other hand, is a mortgage lender that originates and services loans.
- Ownership. Fannie Mae is a publicly-traded company that is owned by shareholders. 21st Mortgage is a privately-owned company.
- Products and Services. Fannie Mae offers a variety of mortgage products and services, including conventional loans, government-backed loans, and affordable housing initiatives. 21st Mortgage primarily originates and services manufactured home loans.
- Eligibility Requirements. Fannie Mae has eligibility requirements that borrowers and properties must meet in order to qualify for a loan. These requirements include factors such as credit score, income, debt-to-income ratio, and the type of property being purchased. 21st Mortgage also has eligibility requirements, but they are specific to the type of loan being originated (i.e. manufactured home loans).
- Customer Service. Fannie Mae does not interact directly with borrowers, as its role is to buy and sell mortgages from lenders. 21st Mortgage, on the other hand, is responsible for interacting with borrowers on a regular basis to originate loans, collect payments, answer questions, and provide customer service.
Overall, while both Fannie Mae and 21st Mortgage are involved in the mortgage industry, they play different roles as mortgage companies and have different focuses. Fannie Mae's primary goal is to promote homeownership and stability in the housing market, while 21st Mortgage's focus is on originating and servicing manufactured home loans.
