Any consumer that may have gone in for a mortgage has probably heard about the Fannie Mae program. It is designed to help people reach the American dream of owning their own home. Fannie Mae was originally started as part of the New Deal package and was the first corporation in to the secondary mortgage industry.
On the surface the Fannie Mae Corporation may not seem so bad. In fact, it could be seen as something positive because it is helping more people get into the real estate market and therefore stimulating the economy. But it is the things you don't know about Fannie Mae that will make your skin crawl.
Fannie Mae was originally a government program, but was made a private corporation in then 1960's and is no traded on the stock market. Unlike all other corporations, Fannie Mae is not regulated by the SEC. Up until a few years ago (when it voluntarily began complying) no one could see its books. Even after seeing the books, no one understands the accounting.
Not only is the Fannie Mae the largest secondary mortgage company in the industry, but it is also backed by the United States government (figuratively if not literally). This means that WHEN it runs into trouble, its share holders will be looking to the tax payer funded government to bail it out.
If you weren't already worried about the real estate market then finding out about Fannie Mae should get you there.
Until recently, Fannie Mae was a part of the US Government, and was overseen by the Housing 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 by making it possible for many low-to-middle income Americans to own homes.
How did all this come about, and what does it mean to the mortgage industry? Lets take just a moment to explore Fannie Maes history, mission, and place in the current mortgage industry.
In 1938, Fannie Mae was established by the US Government to promote the growth of home ownership by providing a secondary mortgage market. What is a secondary mortgage market? Well, the secondary mortgage market exists in the buying and selling of a mortgage from one lender to another.
The bank, or Mortgage Company that provided you with your loan, can turn around and seek to sell your mortgage to a company such as Fannie Mae. This frees up their cash to make another mortgage loan.
And the cycle of growth is expanded and sustained in this manner. The idea and concept worked, and today, Fannie Mae has helped millions of Americans achieve the dream of home ownership.
In 1968, just thirty years later, Fannie Mae became a private company operating with private capital. She had outgrown her need for federal funding and supervision. The housing industry has continued to grow, and currently the entire mortgage market is experiencing phenomenal success.
Thanks also to the available technology; Fannie Mae helps todays lenders approve customers in less than 24 hours. Many lenders use the automated system provided by Fannie Mae to seek and get approval for borrowers much faster than anything available, even 10 years ago.
Fannie Mae Corporation has done a fantastic job of promoting the growth of housing among the low-to-middle income Americans for the last 10 years, and thanks to those efforts, more American own homes now, than in any other period in history. Thats quite an accomplishment, by a company that never directly lends money to the consumer.
Fannie Mae deals only in the secondary mortgage market, this way Fannie Mae Corporation can ensure that money for mortgages is available throughout the 50 states and that as many homeowners as possible can take advantage of home ownership.
How does Fannie Mae continue to fund the mortgages that she buys? Through the issuance of mortgage backed securities. These securities known as MBS are issued to investors.
When Fannie Mae issues the MBS, she is guaranteeing the investors a return on their investment, and at the same time, providing a source of funding for issuing further mortgages. This provides the nations lenders with a steady stream of cash to continue to make mortgages available to the consumer.
How does all this relate to the home of your dreams? Well, stop just a moment to connect all the dots. Fannie Mae buys mortgages from your local lender. The lender receives the proceeds from that purchase, and can then offer a new mortgage to you.
Its a steady and continual circle of growth. Why? Well, Fannie Mae isnt the only lender in the secondary market. Insurance companies, pension funds, securities dealers, and other financial institutions buy mortgages on the secondary market. Who invests 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 other mortgage lenders in the secondary market, work to foster home ownership and community growth, all in one process?
The primary focus for Fannie Mae, operating under a government directive, is to provide the maximum amount of help to lenders in making mortgage loans to the low, to middle, to moderate income families across America.
Fannie Mae is also involved in a nationwide effort to join with lenders and community partners to create even more home ownership possibilities.
Both Bill Morgan & Ben Needles are contributors for EditorialToday. The above articles have been edited for relevancy and timeliness. All write-ups, reviews, tips and guides published by EditorialToday.com and its partners or affiliates are for informational purposes only. They should not be used for any legal or any other type of advice. We do not endorse any author, contributor, writer or article posted by our team.
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