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What is Fannie Mae?

Damir Wallener
Damir Wallener

The Federal National Mortgage Association, commonly known as Fannie Mae, trades under the New York Stock Exchange ticker symbol FNMA. It was established in 1938 by the US Congress as a Government Sponsored Enterprise, or GSE. While the company does not have an explicit guarantee of government backing, it is widely regarded being too important to fail.

Fannie Mae is responsible for maintaining a secondary market in home mortgages. By ensuring that mortgages meeting specific criteria can be readily traded among lending institutions and investment banks, it increases the ability of lenders to provide long term mortgages. A direct benefit to consumers is that mortgage interest rates are lower than they would otherwise be. For example, so-called Jumbo mortgages, which are loans larger than Fannie Mae will accept, generally carry an interest rate as much as 0.5% higher.

Fannie Mae operates a secondary market in home mortgages.
Fannie Mae operates a secondary market in home mortgages.

This company's business consists of buying and pooling conforming loans. Conforming loans must meet criteria established by Fannie Mae, including restrictions on the size of the loan and qualifications of the borrower. When buying these loans, the company assumes the risk of defaulting borrowers and changing interest rates.

To hedge the exposure to variable interest rates, Fannie Mae trades heavily in the market for financial derivatives know as interest rate swaps. Interest rate swaps allow the company to sell a future series of unknown interest payments in exchange for a known series of payments over the near-term. Fannie Mae also buys and sells strips, mortgages in which the principal is traded separately, i.e. "stripped," from the stream of interest payments it is expected to generate. A large global market in these mortgage-backed securities has evolved, largely due to the existence of Fannie Mae.

Fannie Mae is not required to file regular financial reports with the Securities and Exchange Commission (SEC), although in 2002 it began to do so under pressure from SEC and Congressional investigators. In 2004, the SEC required the company to restate several years of earnings statements, alleging that previously reported profits were in fact multi-billion dollar losses. Late that year, its longtime CEO and CFOs Franklin Raines and Timothy Howard were fired under allegations of accounting fraud. While current Fannie Mae management claims the accounting discrepancies are due to differing interpretations on how to account for interest rate swaps, investigators allege profits were misreported to allow for high management bonuses. Notable critics of the company include Alan Greenspan, former Chairman of the Federal Reserve Bank.

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Discussion Comments


When you borrow money from a bank for your mortgage loan, does Fannie Mae resell those loans?

We had our loan with a local bank, and were able to make payments to them. If there was ever a problem or any kind of question, we talked with people locally because our loan was in house.

A few years ago, we received notice that someone else was going to be servicing our loan because it had been sold. Now we make payments to a company halfway across the country and no longer have the local help available.

I was wondering what part Fannie Mae played in the selling of this mortgage loan?

The last time I looked at the stock price for Fannie Mae, the prices were at historical lows. This makes sense with the interest rates being so low for so long.

I don't imagine interest rates will continue to be this low, but I also never dreamed they would be where they are at today. A few years ago a 5% loan sounded like a good deal on a mortgage loan.

Today, some people are able to get one for around 3-4%. That is a big difference when you are talking about thousands of dollars over the course of 20-30 years.

The price for this stock hasn't seemed to change much lately. When the interest rates start to rise, it will be interesting to see if the price of this stock will rise too.


The qualifications to borrow money for a home loan have sure changed. I have often wondered how some young couples today will ever be able to buy their own home.

We have good credit and don't usually have any trouble meeting the qualifications. Because of this, we are also able to get the best interest rate. If someone does not have good credit, and a large down payment, it is much more difficult to be approved for a loan.

Not only has Fannie Mae been under a lot more scrutiny, but the banks have been too. In one sense it is kind of frustrating, but on the other hand, it was way too lenient before. There were many people who were loaned more money than they could really afford to pay.


I have never paid much attention to the Fannie Mae stock quote, but know there has been a lot of volatility and uncertainty there in the last several years.

Many people who have a mortgage on their home have probably heard of Fannie Mae. We recently refinanced our mortgage because interest rates were so low.

With Fannie Mae being so closely involved in the secondary market for home mortgage loans, we were able to lock in a very competitive rate.

Sometimes I wonder how much security there really is in a government sponsored business, but if we wanted to borrow money for our loan, this seemed like the best option.


It's a weird abbreviated for the full name, Federal National Mortgage Association.

F Nat M A

Much like Ginnie Mae is the Government version, instead of Federal.


Why is it called Fannie Mae?

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    • Fannie Mae operates a secondary market in home mortgages.
      By: bmak
      Fannie Mae operates a secondary market in home mortgages.