Glossary

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Fannie Mae

Fannie Mae is the larger of two government-sponsored enterprises (GSEs) created by Congress. (The smaller one is Freddie Mac.) It purchases and sells residential mortgages that conform to the guidelines it has established. For this reason, loans bought and sold by Fannie Mae are called “conforming” mortgages. Fannie Mae is also referred to as Federal National Mortgage Association.

History

Fannie Mae was created in the late 1930s by the federal government to increase the availability of mortgage funding and expand homeownership in the US. The Federal Housing Authority authorized Fannie Mae to purchase FHA mortgages so that funding available for lending was kept steady.  In 1968, the company became a private corporation and broadened its operations. In 2008 it was taken over by the US government and now is monitored by the United States Congress

Though the company participates in the mortgage lending industry, Fannie Mae does not lend directly to home buyers.  Instead, the company works with lenders by buying mortgages from them, so that they can use the money to make more loans to home buyers.  When a buyer finances the purchase of his or her home with a conforming loan, Fannie Mae can purchase the mortgage, bundle it with other home loans and sell shares to investors who profit from the interest that the homeowners pay on their mortgages. This process is called “securitization.”  

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