Federal National Mortgage Association is a government-sponsored enterprise (GSE) controlled by the United States government. It is commonly referred to as Fannie Mae. The organization helps assure that enough money is available for home mortgages.
Fannie Mae does not loan money directly to buyers purchasing a home. Instead, Fannie Mae purchases mortgages from the banks, savings and loan associations, mortgage companies, and other financial institutions that make these loans. Fannie Mae bundles mortgages together and sells them to investors in the form of financial assets called mortgage-backed securities. The investors who own these securities receive principal and interest from the homeowners’ mortgage payments on the loans purchased by Fannie Mae.
Fannie Mae was established in 1938 as a government-owned corporation with the aim of making home mortgages more readily available. The organization was placed under the Housing and Home Finance Agency in 1950. In 1954, Fannie Mae was reorganized as a corporation owned jointly by the government and private stockholders. It became a private corporation in 1968.
In 2008, the corporation faltered after it had heavily invested in risky mortgages. A credit and financial crisis had begun in 2007, leading to an increase in home foreclosures, the legal procedure by which lenders take over mortgaged properties from borrowers unable to afford their mortgage payments. Fannie Mae owned or guaranteed so many of the mortgages that it could not meet its financial obligations. In 2008, U.S. Secretary of the Treasury Henry M. Paulson, Jr., signed an agreement that the government would cover future losses for Fannie Mae, and Fannie Mae once again became government-owned.
In 2019, Fannie Mae and the GSE Federal Home Loan Mortgage Corporation, commonly called Freddie Mac, began to issue a uniform mortgage-backed security (UMBS). The introduction of the new security created a larger, more liquid market—that is, a market in which many people or organizations can quickly buy and sell at a low transaction cost.
