Understanding Realty
How Does Fannie Mae Work?
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. 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. Investors just like you and I can
purchase stock in the Fannie Mae Corporation, and not only increase
our won wealth, but also help to fund the home ownership
possibilities for a new generation of Americans.
In 1968, just thirty years after her government commissioned
birth, Fannie Mae became a private company operating with private
capital. She had outgrown her need for federal funding and
supervision. That does not mean, however, that the government does
not still closely work with the Fannie Mae Corporation. It does. The
housing industry has continued to grow, and currently the entire
mortgage market is experiencing phenomenal success. Fannie Mae’s
focus, however, is still on the low to middle-income American.
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 nation’s 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. It’s a steady
and continual circle of growth. Why? Well, Fannie Mae isn’t 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.
Through this partnering, and the existence of FHA backed mortgage
loans, the Fannie Mae Corporation and your local lender can offer a
greater variety of loan products, and reach a much broader client
base. This increases once again, the homeownership possibility for
many, more Americans. Thanks to the expanding mortgage product line,
the increase in real estate values, and the efforts of Fannie Mae,
more Americans own their own home than ever before. Where will the
future take Fannie Mae, and corporations like her? I think the
Fannie Mae Corporation will continue to foster growth and the
realization of the American Dream for many successful years to come.
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