Introduction
Table of Contents
Fannie Mae is a government-sponsored enterprise (GSE) with the stated mission of expanding homeownership and affordable rental housing. The organization was created in 1938 by an executive order from President Franklin D. Roosevelt during the Great Depression, when the United States was struggling with a large number of home foreclosures. It exists to this day as an independent, publicly traded company and receives funding from Congress (though it has not received federal funds since 2008). Fannie Mae purchases mortgages from banks and other lenders and then holds those mortgages in its portfolio or bundles them into mortgage-backed securities that are sold to investors around the world. Fannie Mae’s financial performance is influenced by interest rates, prepayments on its mortgages, credit losses on its loans, and other factors.
Fannie Mae’s primary function is to finance mortgages.
Fannie Mae’s primary function is to finance mortgages. The company buys mortgages from lenders and bundles them into mortgage-backed securities (MBS). Fannie Mae then sells MBS to investors, such as pension funds and financial institutions, who are seeking a safe way to invest in real estate. By issuing MBSs that carry the guarantee of the federal government (because Fannie Mae is owned by the government), Fannie Mae enables investors to gain exposure – albeit indirectly -to real estate through their investments in its MBSs. In return for this service, Fannie Mae earns fees paid by these investors when they buy or sell its securities.
In addition to purchasing and selling MBSs on its own behalf, Fannie Mae also purchases them from lenders who originate mortgages directly with consumers or through brokers; these loans are referred to as “flow” business because they’re based on customer demand for home loans rather than as part of an existing relationship with another firm like Citigroup Inc., Deutsche Bank AG or UBS AG (known collectively today as DBRS)
Fannie Mae has two main business segments.
- Fannie Mae has two main business segments.
- The first is a secondary market for mortgages, which includes mortgage purchases, sales and guarantees. This function is specifically used by banks and other lenders to expand their portfolios of funds available for lending.
- The second segment includes rental properties that it owns directly or through partnerships with private investors for its own use as well as providing housing for low-income families under various programs at HUD (Department of Housing and Urban Development).
Fannie Mae makes most of its money from the interest it earns from holding the mortgage-backed securities it buys.
Fannie Mae is a government-sponsored enterprise that was created to help foster affordable housing. The company buys mortgages from banks, holds them until they are paid off, and then sells them to investors. Fannie Mae makes money by charging banks for providing the service of holding mortgages until they are paid off.
Fannie Mae also earns income from fees charged for servicing mortgages (such as sending payment notices and processing loan modifications).
Fannie Mae is a publicly traded company (OTC).
Fannie Mae is a publicly traded company. In fact, it’s the largest mortgage buyer in the world. Fannie Mae provides funding for home loans and has become a big player in our housing market.
The Federal Home Loan Bank System (FHLBS) is made up of 12 regional banks (and one central bank). The purpose of these banks is to provide liquidity and stability during times of crisis for member institutions.
Fannie Mae is also a member of the Federal Home Loan Bank System.
- Fannie Mae is publicly traded on the New York Stock Exchange under the ticker FNMA.
- Fannie Mae is a member of the Federal Home Loan Bank System, which provides much of Fannie Mae’s funding. In return for its funding, Fannie Mae pays dividends to member banks and purchases mortgage-backed securities from them.
- The company has two main business segments: single-family mortgage lending; and securitization and structured financial products, which includes its role in issuing mortgage-backed securities that are sold all over the world by investment firms, such as Vanguard or T Rowe Price (see above).
Fannie Mae’s biggest expense is mortgage purchases and dividends paid on preferred stock (mandatory to being in the Federal Home Loan Bank System).
Fannie Mae’s biggest expense is mortgage purchases and dividends paid on preferred stock (mandatory to being in the Federal Home Loan Bank System).
The second largest expense for Fannie Mae is its operating costs, which include employee salaries, training and recruitment expenses, information technology costs and other general administrative expenses. These expenses are expected to total $2 billion in 2018.
Like all government-sponsored enterprises, Fannie Mae has been accused of corporate missteps.
Like all government-sponsored enterprises, Fannie Mae has been accused of corporate missteps.
In 1990, the Federal Housing Administration’s Office of Inspector General investigated Fannie Mae and found that it had engaged in accounting fraud by overstating its profits. A few years later, a series of investigations revealed that Fannie Mae executives had received bonuses and stock options despite receiving low ratings from customers at their branches; there is some evidence that these bonuses were linked to using their political connections with Congressmen to gain favoritism over other organizations. This led to allegations that Fannie Mae was engaging in conflicts of interest between its political influence and its fiduciary responsibilities as an investor.[7]
GSEs are required by law to comply with federal regulations governing fair lending practices; however, during the early 2000s they were accused by HUD officials of targeting minorities for subprime mortgages.[8] In 2003/2004 several banks began filing lawsuits against GSEs (primarily Fannie Mae) arguing breach of contract because they claimed these institutions did not meet their obligation under HUD guidelines regarding fair housing practices.[9]
Governments want people to own homes, but there are problems with this business model.
In the United States, the government wants people to own their homes. The government also wants to help people who cannot afford to buy a home on their own. In addition, governments want people to have access to housing that is safe and secure without having to spend more than they can afford. Fannie Mae helps with all of these goals by providing liquidity for lenders in the mortgage market and enabling homeownership by keeping up with the demand for mortgages during difficult economic times.
Conclusion
Fannie Mae’s business model is quite simple: Buy mortgages from banks and other financial institutions and package them into securities that are sold to investors. Fannie Mae makes money in two ways: the interest it earns by holding on to mortgage-backed securities and the fees it charges for guaranteeing loan quality. The company also has a secondary business, which is selling mortgages directly to consumers through its website. Fannie Mae’s main problem is that while people like owning homes, governments want to encourage homeownership even more than they do—so they’ve encouraged (and sometimes coerced) Fannie Mae into taking on riskier mortgages with lower down payments in order to make homeownership more affordable for low-income borrowers.
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