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Loans, HomePath and All You Should Know


Fannie Mae (officially the Federal National Mortgage Association, or FNMA) is a government-sponsored enterprise (GSE) – that is, a publicly traded company which operates under Congressional charter – that serves to stimulate homeownership and expand the liquidity of mortgage money by creating a secondary market. Established in 1938 during the Great Depression as part of the New Deal, Fannie Mae channels its efforts into increasing the availability and affordability of homeownership for low-, moderate- and middle-income Americans.


As a secondary mortgage market participant, Fannie Mae does not originate loans or provide mortgages to borrowers. Instead, it keeps funds flowing to mortgage lenders (e.g., credit unions, local and national banks, thrifts and other financial institutions) through the purchase and guaranty of mortgages made by these firms. In fact, it’s one of two of the largest purchasers of mortgages on the secondary market: The other is its sibling, the Federal Home Loan Mortgage Corporation, or Freddie Mac, which is also a government-sponsored enterprise created by Congress.


$5 trillion

The amount Fannie Mae has invested in the mortgage market since 2009.

By investing in the mortgage market, Fannie Mae creates more liquidity for lenders, such as banks, thrifts and credit unions, which in turn allows them to underwrite or fund more mortgages. The entity estimates it has funded the market with $5 trillion since 2009, financing approximately six million home purchases, 14 million refinancings, and three million rental apartments. It is the largest funder or backer of 30-year fixed-rate mortgages in the U.S.




Fannie Mae Stock


In the latter half of 2008, Fannie Mae and Freddie Mac were taken over by the government via a conservatorship of the Federal Housing Finance Committee. Both were bailed out to the tune of $187.4 billion, which saved them from collapse. By 2014, Fannie Mae had repaid the government more than the sum it received.


In August of 2012, the terms governing Fannie Mae’s dividend obligations changed so that the U.S. Treasury claims any profits at the end of each quarter, and provides capital if there is a deficit. So even though Fannie Mae makes money, its profits are handed over each quarter to the government.




Fannie Mae Guidelines



After purchasing mortgages on the secondary market, Fannie Mae pools them to form mortgage-backed securities (MBS). MBS are asset-backed securities that are secured by a mortgage or pool of mortgages. Fannie Mae’s mortgage-backed securities are then purchased by institutions, such as insurance companies, pension funds, and investment banks. It guarantees payments of principal and interest on its MBS. 


Fannie Mae also has its own portfolio, commonly referred to as a retained portfolio, which invests in its own and other institutions’ mortgage-backed securities. Fannie Mae issues debt, called agency debt, to fund its retained portfolio.


Key Takeaways

  • The Federal National Mortgage Association (FNMA), also known as Fannie Mae, is a government-sponsored enterprise (GSE) created by Congress.
  • Fannie Mae doesn’t originate or give out mortgages to homeowners looking for funding, but it does buy and guarantee them through the secondary mortgage market.
  • Fannie Mae and its sibling, the Federal Home Loan Mortgage Corporation, or Freddie Mac, are the two largest purchasers of mortgages on the secondary market.
  • By investing in mortgages, Fannie Mae creates more liquidity for lenders, including banks, thrifts and credit unions, which then allows them to underwrite or fund more mortgages.
  • Fannie Mae and Freddie Mac both nearly collapsed during the 2008 financial crisis, were bailed out, put into government conservatorship, and eventually paid back the billions they received to stay afloat.


Fannie Mae Loans




How to Apply for a Fannie Mae-Backed Mortgage


In order to be approved for a Fannie Mae-backed loan, having a front-end debt-to-income ratio (DTI) of no more than 28% is preferable. A front-end DTI determines how much of your gross income goes towards housing costs. If your DTI is too high, if you can, make a larger down payment, which will reduce your monthly costs. Fannie Mae requires a minimum down payment of 5% for a fixed-rate mortgage, although 20% is typically ideal.


Homebuyers must also meet minimum credit requirements in order to be eligible for Fannie Mae-backed mortgages. For a single-family home that is a primary residence, a FICO score of at least 620 for fixed-rate loans and 640 for adjustable-rate mortgages (ARMs) is required. Of course, the better — or higher — your FICO score, the more eligible you are for the lowest available interest rates.



Loan Modifications



Fannie Mae HomePath

When foreclosures arise on mortgages in which Fannie Mae is the owner/investor, or when properties are acquired through deeds-in-lieu of foreclosure or forfeiture, Fannie Mae attempts to sell the properties in a timely manner in order to minimize potential impacts on the community. HomePath.com is the Fannie Mae website where homebuyers and investors can search for and make offers these properties, and HomePath Mortgage offers buyer financing products for the properties. In some cases, special financing may be available through HomePath Mortgage and HomePath Renovation Mortgage. These include expanded seller contributions for owner-occupied properties, and lower down payment options for buyers with multiple financed properties.


HomePath.com exclusively offers properties that are owned by Fannie Mae, and include single-family homes, townhouses, and condominiums. Fannie Mae uses local real estate professionals to prepare, maintain and list the properties for sale. Most listings have photographs, property descriptions and other details, including school and neighborhood information. The number, type, and sales prices vary greatly by market, as does the condition of the properties. While some homes are move-in ready, others require repairs or even extensive renovations. Each property is sold in “as is” condition.


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About Amy Harvey

Amy R. Harvey writes forStartUps Sections In AmericaRichest.

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