Fannie Mae, short for the Federal National Mortgage Association (FNMA), is a government-sponsored entity (GSE) in the United States. It was established in 1938 as part of the New Deal during the Great Depression. Fannie Mae’s primary mission is to provide stability and liquidity to the secondary mortgage market, thereby ensuring access to affordable mortgage credit for Americans.

Here’s a brief overview of Fannie Mae’s role and function:

  1. Secondary Mortgage Market: Fannie Mae operates in the secondary mortgage market, which means it doesn’t directly originate loans. Instead, it purchases existing mortgages from lenders, such as banks, credit unions, and other financial institutions.
  2. Mortgage-Backed Securities (MBS): After purchasing mortgages, Fannie Mae bundles them together into pools and issues mortgage-backed securities (MBS) to investors in the capital markets. These MBS represent an ownership interest in the underlying pool of mortgages.
  3. Risk Mitigation: By purchasing mortgages and issuing MBS, Fannie Mae helps to transfer the credit risk of the underlying mortgages from lenders to investors. This allows lenders to free up capital and provide more loans to homebuyers.
  4. Affordable Housing Initiatives: Fannie Mae is required by law to support affordable housing initiatives. A portion of its business is focused on financing mortgages for low- and moderate-income borrowers and for properties that serve affordable housing needs.
  5. Government Support: Although Fannie Mae is a shareholder-owned corporation, it has a unique relationship with the federal government. It was chartered by Congress and operates under a federal charter, which grants it certain privileges, including access to a line of credit with the U.S. Department of the Treasury.
  6. Regulation: Fannie Mae is regulated by the Federal Housing Finance Agency (FHFA), an independent federal agency responsible for overseeing the housing GSEs, including Fannie Mae and Freddie Mac.
  7. Financial Crisis: Fannie Mae played a significant role in the 2008 financial crisis. The company experienced financial difficulties due to exposure to high-risk mortgages and faced significant losses. In response, the U.S. government took it into conservatorship in September 2008, placing it under the FHFA’s control to stabilize its operations and prevent further financial instability.

In summary, Fannie Mae plays a crucial role in the US housing market by providing liquidity, stability, and support to mortgage lenders, which in turn helps ensure a steady flow of affordable mortgage credit for homebuyers.