How Does Fannie Mae Work?

In 1938, Fannie Mae was established by the US Government topromote the growth of home ownership by providing a secondary mortgagemarket. What is a secondary mortgagemarket? Well, the secondary mortgagemarket exists in the buying and selling of a mortgage from one lender toanother. The bank, or Mortgage Companythat provided you with your loan, can turn around and seek to sell yourmortgage to a company such as Fannie Mae. This frees up their cash to make another mortgage loan. And the cycle of growth is expanded andsustained in this manner. The idea andconcept worked, and today, Fannie Mae has helped millions of Americans achievethe dream of home ownership. Untilrecently, Fannie Mae was a part of the US Government, and was overseen by theHousing and Urban Development branch of that government. Now, however, Fannie Mae is a privately held,stock ownership company that promotes the growth of the housing industry bymaking it possible for many low-to-middle income Americans to own homes. Investors just like you and I can purchasestock in the Fannie Mae Corporation, and not only increase our won wealth, butalso help to fund the home ownership possibilities for a new generation ofAmericans.

In 1968,just thirty years after her government commissioned birth, Fannie Mae became aprivate company operating with private capital. She had outgrown her need for federal funding and supervision. That does not mean, however, that thegovernment does not still closely work with the Fannie Mae Corporation. It does. The housing industry has continuedto grow, and currently the entire mortgage market is experiencing phenomenalsuccess. Fannie Mae's focus, however, isstill on the low to middle-income American.

Fannie Mae deals only in thesecondary mortgage market, this way Fannie Mae Corporation can ensure thatmoney for mortgages is available throughout the 50 states and that as manyhomeowners as possible can take advantage of home ownership.

How doesFannie Mae continue to fund the mortgages that she buys? Through the issuance of mortgage backedsecurities. These securities known as MBS are issued to investors. When Fannie Mae issues the MBS, she isguaranteeing the investors a return on their investment, and at the same time,providing a source of funding for issuing further mortgages. This provides the nation's lenders with asteady stream of cash to continue to make mortgages available to the consumer.

How doesall this relate to the home of your dreams? Well, stop just a moment to connect all the dots. Fannie Mae buys mortgages from your locallender. The lender receives the proceedsfrom that purchase, and can then offer a new mortgage to you. It's a steady and continual circle ofgrowth. Why? Well, Fannie Mae isn't the only lender in thesecondary market. Insurance companies,pension funds, securities dealers, and other financial institutions buymortgages on the secondary market. Whoinvests in these insurance companies, pension funds and securities dealers? Where do they get their money? From taxpayers just like you. Mortgage holders just like you. Now can you see how Fannie Mae and othermortgage lenders in the secondary market, work to foster home ownership andcommunity growth, all in one process?

The primaryfocus for Fannie Mae, operating under a government directive, is to provide themaximum amount of help to lenders in making mortgage loans to the low, tomiddle, to moderate income families across America. Fannie Mae is also involved in a nationwideeffort to join with lenders and community partners to create even more homeownership possibilities.

Throughthis partnering, and the existence of FHA backed mortgage loans, the Fannie MaeCorporation and your local lender can offer a greater variety of loan products,and reach a much broader client base. This increases once again, the homeownership possibility for many, moreAmericans. Thanks to the expandingmortgage product line, the increase in real estate values, and the efforts ofFannie Mae, more Americans own their own home than ever before. Where will the future take Fannie Mae, andcorporations like her? I think theFannie Mae Corporation will continue to foster growth and the realization ofthe American Dream for many successful years to come.