Fannie Mae

Definition

Fannie Mae, officially known as the Federal National Mortgage Association, is a government-sponsored enterprise (GSE) established to expand the secondary mortgage market in the United States. By buying mortgages from lenders, Fannie Mae provides them with liquidity, enabling more loans to be issued, and thus plays a crucial role in supporting homeownership and stability in the housing market.

5 Must Know Facts For Your Next Test

1. Fannie Mae was created in 1938 during the Great Depression as part of the New Deal to help increase homeownership by making mortgages more accessible.
2. In 2008, amid the financial crisis, Fannie Mae was placed into conservatorship by the federal government to stabilize its operations and prevent further damage to the housing market.
3. Fannie Mae primarily operates by purchasing mortgages from lenders and packaging them into mortgage-backed securities, which are then sold to investors.
4. The mission of Fannie Mae is not only to enhance access to affordable housing but also to support sustainable homeownership through various programs and initiatives.
5. Fannie Mae's role in the housing market is critical as it helps to lower borrowing costs for homeowners by providing a stable source of funding for mortgage loans.

Review Questions

• How does Fannie Mae support the availability of mortgages for homeowners?
  • Fannie Mae supports mortgage availability by purchasing loans from lenders, which provides those lenders with additional capital to issue more loans. This process helps ensure that banks and financial institutions have enough liquidity to continue lending, making mortgages more accessible to potential homeowners. By operating in this way, Fannie Mae enhances overall market stability and promotes increased homeownership rates across the country.
• What were the implications of placing Fannie Mae into conservatorship during the 2008 financial crisis?
  • The conservatorship of Fannie Mae during the 2008 financial crisis had significant implications for both the housing market and the broader economy. By taking control of Fannie Mae, the federal government aimed to stabilize its operations and protect investors from potential losses, which helped restore some confidence in the mortgage market. This intervention also ensured that Fannie Mae could continue supporting homeownership despite the economic downturn, ultimately aiding in the recovery of the housing sector.
• Evaluate Fannie Mae's impact on housing affordability and access during both periods of economic stability and crisis.
  • Fannie Mae has had a profound impact on housing affordability and access by consistently providing liquidity to mortgage lenders, allowing them to offer more competitive rates to consumers. During periods of economic stability, this enables increased homeownership rates and makes it easier for families to buy homes. Conversely, during crises like the 2008 financial collapse, Fannie Mae's ability to function as a stabilizing force helped mitigate further declines in home prices and maintained access to credit for borrowers. This dual role underscores its importance in both fostering growth and providing resilience in tumultuous economic times.

Related terms

Freddie Mac: Freddie Mac, or the Federal Home Loan Mortgage Corporation, is another government-sponsored enterprise that works alongside Fannie Mae to provide liquidity and stability to the mortgage market.

Subprime Mortgage Crisis: A financial crisis that occurred in the mid-2000s, characterized by a rise in mortgage delinquencies and foreclosures, which significantly affected Fannie Mae and its operations.

Mortgage-Backed Securities (MBS): Financial instruments created by pooling together various mortgage loans, which Fannie Mae invests in and guarantees, facilitating the flow of capital into the housing market.