When media coverage includes the various organizations involved in mortgage lending, many people often ask "What does Fannie Mae stand for?" This federally-chartered organization was established to keep money flowing for affordable mortgages for Americans.
Many Wonder What Does Fannie Mae Stand For
The Federal National Mortgage Association was established by the Federal government in 1938 as a source of mortgage funding to help bring affordable home ownership to families. The acronym FNMA was pronounced "Fannie Mae." Eventually, the name of the association was commonly called "Fannie Mae."
Goal: Affordable Mortgages
Fannie Mae was created to purchase Federal Housing Administration (FHA)-backed mortgages from lenders. This purchasing provides funds to lenders which they can use to make additional, affordable mortgage loans.
Even after the lender sells the loan to Fannie Mae, they may choose to provide the "servicing" on the loan. Servicing includes being the homeowner's primary point of contact for everything including payments, information and foreclosure issues. Servicing includes:
- Processing of payments received
- Answering the customer service telephone number
- Responding to customer inquiries via mail
- Sending rate and escrow communications
- Providing annual tax statements
Fannie Mae was not established to make mortgage loans; however, they do have a big impact on the decisions made by lenders. Fannie Mae establishes criteria for the loans they will purchase including credit score and down payment requirements. Lenders often use these same requirements so that their loans can be easily sold to Fannie Mae.
Using Mortgages as Investment Funds
In 1968, Fannie Mae became a privately-owned company using their own funds to buy both FHA and non-FHA mortgages from lenders. Fannie Mae continues to abide by their congressional charter to focus on purchasing mortgages from lenders so the lenders can create additional mortgages to help low and middle-income Americans become homeowners. Fannie Mae also uses the mortgages they purchase as the basis of investments which are sold to investors.
Riding the Mortgage Meltdown
The decline in the housing market and the increase in mortgage interest rates starting in 2007 left many homeowners unable to make their mortgage payments. Many of them had their homes go into foreclosure. About half of these mortgages had been purchased from the original lenders by either Fannie Mae or its sister organization Freddie Mac. As the foreclosures increased, Fannie Mae received less and less in income from the mortgage payments. This reduction in funds made it more difficult for Fannie Mae to purchase mortgages from lenders. The decline in mortgage income also made it more difficult for Fannie Mae to pay returns on the investments which had been made with investors all over the world.
In the fall of 2008, Fannie Mae and Freddie Mac were taken over by the federal government. The reason for the take over was to increase the funds available to both organizations. With these increased funds, they could continue to follow their charters - to purchase mortgages from lenders who, in turn, could use the money to fund affordable mortgages for American homeowners.