What is Fannie Mae? All about America’s big mortgage market-maker

The Federal National Mortgage Association (FNMA), colloquially known as Fannie Mae, is a Congressionally-chartered enterprise that acts as a major player in the mortgage industry.

Fannie Mae does not originate or offer mortgages directly to borrowers, but instead purchases them from lenders who do, in effect guaranteeing a market for the loans. By investing in them this way, it reduces lenders’ risk. Along with buying loans from banks and mortgage companies, Fannie Mae offers various loan products to financial institutions and education programs and services to consumers, helping to ensure homeownership for low- and middle-income Americans.

What does Fannie Mae do?

Created during the Great Depression, Fannie Mae is structured as a shareholder-owned company, though it operates now under the control of the Federal Finance Housing Agency (FHFA). It is what is known as a government-sponsored enterprise (GSE): a private agency or corporation with a federal charter to provide financial services to the public.

In Fannie’s case, those financial services revolve around home loans. Fannie Mae performs a variety of functions to back the mortgage industry and, by extension, the housing market. It offers ready access to funds on reasonable terms to the thousands of banks, credit unions and mortgage companies that finance home purchases. With a commitment to “facilitate equitable and sustainable access to homeownership and quality affordable rental housing across America,” Fannie also indirectly aids individuals.

While Fannie Mae is primarily a loan investor, borrowers can participate in a Fannie Mae loan program by applying for one of the loan types that it sponsors such as HomeReady, 97% LTV, REfiNow and HFA Preferred.

Fannie Mae provides other types of support for the housing market and consumers as well. That includes financing affordable rental housing through such programs as its Delegated Underwriting and Servicing (DUS), which leverages private capital to finance multifamily housing, and by investing in Low-Income Housing Tax Credit (LIHTC) properties in order to help create and preserve affordable multifamily housing.

In addition, Fannie Mae provides rental and homeownership education and offers access to counselors who can help individuals sort through financial and disaster relief challenges.

Here’s a closer look at some of Fannie Mae’s programs and offerings.

Buys and backs mortgages

Fannie Mae buys home loans and mortgages in the secondary mortgage market (where lenders sell the loans and mortgages they’ve originated). This in turn frees up the lender’s capital so that it can extend new loans to more borrowers. Most mortgage originators do actually end up selling their loans, but since they often continue servicing them, the mortgage-holder never knows it.

In fact, Fannie Mae, and its sister GSE Freddie Mac (officially the Federal Home Loan Mortgage Corporation) are the largest mortgage market-makers in the U.S.  After purchasing them from lenders, both Fannie and Freddie either hold the loans individually or package them into mortgage-backed securities to be sold to investors. Either way, the burden of the debt is acquired by Fannie and pressure is thus moved away from private lending institutions. Fannie Mae, like Freddie Mac, has a focus of keeping the mortgage market fluid and well-regulated, keeping credit and the flow of funds operating smoothly.

Operates HomePath

Homepath.com is Fannie Mae’s real estate marketing website. It can be used by prospective homebuyers and real estate agents to search for Fannie Mae-owned properties that are available to be purchased.

The condition of the homes available through HomePath may vary. Often the properties listed on the site are homes that owners voluntarily conveyed to Fannie Mae in order to avoid foreclosure. Many of the properties have undergone repairs, but some have not.

During the first 30 days a home is listed on the site, HomePath offers owner occupants the opportunity to make offers and purchase newly listed HomePath properties without competition from investors via Fannie Mae’s First Look program.

HomePath also offers incentives to buy homes through the program. Owner-occupant buyers who have incomes at or below the area median income (AMI) may be eligible for closing cost credits of up to 3 percent of the sales price. In addition, first-time homebuyers who complete Fannie Mae’s HomeView course through the Ready Buyer program are eligible for a closing cost credit of up to 3 percent.There are also certain criteria to be aware of when purchasing a home through HomePath, including:

• The homes must be purchased as-is
• If you’re represented by a real estate agent, your agent must register on the HomePath website in order to submit an offer on your behalf
• You must be pre-approved for a loan at the time of the offer (if the purchase is being made with financing)

Runs counseling networks

Fannie Mae directly aids consumers by providing a variety of counseling services. They include information and assistance dealing with financial uncertainty, budgeting, disaster recovery or other types of housing-related challenges.

Here are a few of the most well-known counseling networks.

Mortgage Help Network

The Fannie Mae Mortgage Help Network is free for homeowners who are experiencing financial challenges or who have been impacted by disaster. The program provides free counseling services from counselors that have been approved by the U.S. Department of Housing and Urban Development (HUD).

Disaster Response Network

A part of the larger Mortgage Help Network, this program helps to support homeowners whose property has been impacted by a natural disaster or other significant crises. This support is available in multiple languages, and for up to 18 months in duration.

Fannie Mae loan products

Like government agencies such as the Federal Home Administration (FHA), Fannie Mae operates through private lenders to offer financing options. The terms are more generous than those of conventional mortgage lenders, who typically require 10 or 20 percent of the property’s price as a down payment.

• HomeReady

  HomeReady is a loan program geared towards low-income aspiring homeowners — mainly first-timers, though repeat buyers can apply as well. While HomeReady, like the FHA, does not lend directly to consumers — it’s offered through Fannie-approved lenders — participation in the program can help borrowers who cannot qualify for conventional loans; in fact, it even has lower barriers than an FHA loan (as little as 3 percent down payment, vs. FHA’s 3.5 percent). For first-time homeowners, requirements do include the completion of a homeowner education program before approval.
  

• 97% LTV Program

  This program, aka “Conventional 97”,  is available to first-time borrowers and consumers whose loans have already been purchased by Fannie Mae. Similar to HomeReady, buyers can pay as little as 3 percent down, creating a 97 percent loan-to-value (LTV) opportunity. There are no income limits with this program.
  

• REfiNow

  REfiNow extends home refinances to borrowers who have substantial equity in their homes, and it is geared toward helping lower monthly housing costs. REfiNow requires borrowers to make at or less than 100 percent of the area median income, and allows for up to a 65% debt to income (DTI) ratio. There is no longer a minimum credit score for borrowers to qualify for this program.

• HFA Preferred

  HFA Preferred is a low-down-payment conventional mortgage. Together with lenders, Fannie Mae works with Housing Finance Agencies (HFAs) to issue these loans. Similar to FHA loans, HFA loans are offered through Fannie Mae in partnership with state-level housing agencies; though they offer many of the same perks as FHA loans, they come with cancellable mortgage insurance.
  

How do Fannie Mae (FNMA) loans work?

You cannot get a loan directly from Fannie Mae — even if it’s one of the Fannie Mae program loans. Instead, you must first get a loan from a bank, credit union or online lender. Once you close on a loan, it may be purchased by Fannie Mae if the loan meets Fannie Mae’s requirements.

The mortgages eligible for Fannie Mae to purchase are called conforming loans. A conforming loan  has specific guidelines for the borrower’s credit score, down payment amount, debt-to-income ratio (DTI), loan-to-value ratio (LTV) and the type of property that can be purchased. Also, the loan cannot be above a certain size, and there are rules regarding the calculation of its interest rate and its amortization schedule.

How has Fannie Mae impacted the housing market?

Fannie Mae was established by the Congressional Fannie Mae (FNMA) Charter Act in 1938. In the wake of the Great Depression, nearly a quarter of U.S. homeowners lost their properties to foreclosure – and part of the government response was chartering Fannie Mae to help stabilize the housing market.

Prior to Fannie Mae, homeownership was within reach only for the privileged few: Mortgages were short-term and covered at best half of a home’s price. The establishment of this new agency brought forward a new type of loan product: the long-term (30-year), fixed-rate mortgage, which increased accessibility to homeownership for middle- and lower-income Americans. With more affordable monthly payments and lower down-payment thresholds, owning a home became part of the American Dream.

Though Fannie Mae has been essential to helping Americans achieve homeownership as well as to ensuring mortgage market liquidity, it also played a role in the Great Recession. Leading up to the collapse of the housing market that took place in 2007, Fannie Mae had backed subprime mortgages. Once the market collapsed, it lost millions in defaulted loans; the federal government had to bail out Fannie Mae and placed it under FHFA conservatorship, where it remains today.

More recently, Fannie Mae has helped American homeowners in another way. Amid the global COVID-19 pandemic, when many Americans were struggling financially, it provided mortgage relief and protections: forbearance and loan modifications, as well as a foreclosure moratorium, on its backed loans.

Frequently asked questions

• What’s the difference between Fannie Mae, Ginnie Mae, and Freddie Mac?

  Fannie Mae and Freddie Mac (also known as the FHLMC) are two separate entities. While both were established as government-sponsored enterprises (GSEs) and purchase mortgages, and both are under the conservatorship of the same government agency for now, Freddie Mac was created following an act of Congress in 1970, while Fannie is much older — dating from the Depression years.Another major difference is that Fannie Mae tends to purchase loans from larger lenders, while Freddie Mac purchases mortgages from smaller companies. Together they own more than half of America’s conforming loans.Fannie Mae is also a separate enterprise from Ginnie Mae, which is short for the Government National Mortgage Association. Ginnie Mae is a government corporation within the U.S. Department of Housing and Urban Development that buys government-insured or -guaranteed mortgages typically designed to serve low- and moderate income buyers such as FHA, USDA and VA loans.

• Why is it called Fannie Mae?

  The nickname for Fannie Mae draws from the agency’s full name: the Federal National Mortgage Association.  It’s a kind of verbalization of the acronym, FNMA.

• Does Fannie Mae loan directly to people?

  No, Fannie Mae does not make loans directly to consumers. The agency purchases mortgages or other real estate loans from lenders. Fannie does offer some types of financing programs geared toward first-time or low-income borrowers, similar to FHA loans; but, as with those products, you actually obtain the financing through a particular lender.

• What is an FNMA loan?

  An FNMA loan, aka a conforming loan or Fannie Mae-backed mortgage, is a loan or mortgage that has been sold to the Federal National Mortgage Association (FNMA, or Fannie Mae) — or one that meets the criteria for being sold to the agency. These include the loan being within a certain size, depending on the area; the borrower filling out a Uniform Residential Loan Application, and providing proof of income and assets; and the bank or mortgage company underwriting the loan being a Fannie Mae-approved lender.