Definition
Fannie Mae is a public corporation that ensures liquidity in U.S. mortgage markets.
History
Fannie Mae is a nickname for the Federal National Mortgage Association. Fannie Mae was federally chartered in 1938 under Franklin D. Roosevelt to ensure that mortgage funds were available in the nation’s communities.
In 1968, Congress re-chartered Fannie Mae as a public corporation that issues stock to raise capital. Fannie Mae still operates today as a public corporation that answers to both its shareholders and to the Department of Housing and Urban Development (HUD).
Analysis
Fannie Mae ensures liquidity in U.S. mortgage markets by purchasing mortgage loans from banks and mortgage companies. This allows for lenders to reduce their exposure by selling some of their mortgage loans. It also frees up capital that may be reborrowed by another prospective homeowner.
Fannie Mae operates on secondary mortgage markets to ensure that the primary mortgage markets still have capital to lend to new homeowners or existing homeowners that need to refinance. Loans must meet certain eligibility requirements before Fannie Mae will agree to buy them from lenders.
Fannie Mae serves in tandem with Freddie Mac, which is a separate corporation that serves a similar purpose.
