Who is this Fannie Mae  I keep hearing about?

No, it isn’t the candy company.  Fannie Mae or the Federal National Mortgage Association was established in 1938 to make mortgages more readily available under FDR’s New Deal.  In 1968 it was chartered by Congress as a stockholder-owned corporation in order to remove its activity from the annual balance sheet of the federal budget.  The corporations purpose is to purchase and securitize mortgages ensuring that funds are consistently available to the institutions that lend money to home buyers. 

That is the technical definition but what does that mean to me?   Without FNMA obtaining a mortgage today to purchase a home would be very difficult.   In simple terms banks lend out their deposits and make money on the spread between what they pay in interest versus what they collect in interest.  In theory once a bank would lend out all of their deposits there would be no money left for anyone else to  borrower.  Thus the need for FNMA as once the banks lends the money they sell the loan to FNMA at a profit but also get their principal back.

FNMA also determines how much you need to put down, what credit scores you need,  how much income is required, basically all of the rules of the mortgage industry are dictated by FNMA. 

You may have heard that FNMA was taken over by the government in September of 2008 after huge losses and losses of investor confidence.  While the future of FNMA is still uncertain the importance or significance of the  role they play is not.. 

Written by Tony Pigatti or Archer Bank. TPigatti@ArcherBank.com

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