Fannie Mae facts for kids
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Fannie Mae's headquarters in Washington, D.C.
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| Government-sponsored enterprise and public company | |
| Traded as | OTCQB: FNMA |
| Industry | Financial services |
| Founded | 1938 |
| Headquarters | Washington, D.C., U.S. |
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Key people
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| Products | Mortgage-backed securities |
| Revenue |  US$29.735 billion (2022) |
| US$12.923 billion (2022) |
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| Total assets |  US$4.305 trillion (2022) |
| Total equity | US$60.277 billion (2022) |
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Number of employees
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c. 8,000 (December 31, 2022) |
The Federal National Mortgage Association (FNMA), usually called Fannie Mae, is a company in the United States. It is a special kind of business known as a government-sponsored enterprise (GSE). Since 1968, it has also been a company whose shares are traded on the stock market.
Fannie Mae was started in 1938 during the Great Depression. Its main goal is to help more people get home loans. It does this by buying mortgage loans from banks and turning them into mortgage-backed securities (MBS). This allows banks to lend money to more people.
Fannie Mae works closely with another similar organization called Freddie Mac. Together, they play a big role in the U.S. housing market. In 2023, Fannie Mae was one of the largest companies in the world based on its assets, which were over $4.3 trillion.
History of Fannie Mae
How it Started
In the early 1900s, many home loans in the U.S. were short-term. People often had to make a large final payment called a balloon payment. During the Great Depression, many people lost their jobs. They could not make their loan payments. This led to many homes being taken back by banks.
To help with this problem, the U.S. Congress created Fannie Mae in 1938. This was part of President Franklin D. Roosevelt's New Deal plan. Fannie Mae's first job was to give money to local banks. This helped banks offer more home loans. The goal was to help more people own homes and make housing more affordable.
For its first 30 years, Fannie Mae was the only organization doing this. It bought loans that were insured by the Federal Housing Administration (FHA). This helped create a market where banks could sell their home loans.
Becoming a Private Company
In 1954, Fannie Mae became a "mixed-ownership corporation." This meant the government owned some parts, and private investors owned others. Then, in 1968, it became a fully private company. This change was made so that Fannie Mae's activities and debts would not be part of the government's budget.
When Fannie Mae became private, a new government organization was created. It was called the Government National Mortgage Association ("Ginnie Mae"). Ginnie Mae still guarantees certain types of home loans. It is the only home loan agency directly backed by the U.S. government.
In 1970, Fannie Mae was allowed to buy other types of loans. Also, Freddie Mac was created to compete with Fannie Mae. This helped make the market for selling home loans even stronger. That same year, Fannie Mae's stock began to be traded publicly.
Changes in the 1990s
In 1992, a new law was passed. It said that Fannie Mae and Freddie Mac had to help finance affordable housing. This meant they needed to help low- and moderate-income families get home loans. They were given goals each year by the government.
By 1999, Fannie Mae was encouraged to expand its loans to more people. This included people in inner-city areas. However, some people worried that Fannie Mae was taking on too much risk. They thought this could cause problems if the economy slowed down.
The 2000s and the Housing Crisis
Around 2000, rules were put in place to prevent very risky loans. But these rules were later changed. This meant that high-risk loans could again count toward affordable housing goals.
Fannie Mae tried to keep its lending standards safe. However, other companies started offering very risky loans. These loans often had low starting payments but could become very expensive later. Fannie Mae warned about these "layered-risk" loans. It even lost some business because it refused to buy these riskier loans at first.
Some experts, like Nassim Taleb, warned that Fannie Mae was taking on too much risk. They believed the company was very vulnerable to problems in the housing market.
In 2005, lawmakers tried to create new rules for Fannie Mae and Freddie Mac. They wanted to make sure these companies were financially strong. However, these new laws were not passed.
The Mortgage Crisis (2007-2008)
Fannie Mae and Freddie Mac had a mission to help people buy homes. They aimed to make it easier for low and middle-income families to get loans. But around 2003-2004, a problem called the subprime mortgage crisis began.
Many loans were being made by private companies. These companies often offered very risky loans and did not keep much of the risk themselves. This made it harder for Fannie Mae to control the quality of loans. To compete, Fannie Mae and Freddie Mac also started to accept some riskier loans.
As more people struggled to pay their mortgages, especially those with adjustable rates, home foreclosures increased. This caused home prices to fall. Fannie Mae, which backed many U.S. mortgages, started to lose a lot of money.
In July 2008, the U.S. government tried to calm fears about Fannie Mae. They said the company was very important to the housing system. The government even allowed Fannie Mae to borrow money from the Federal Reserve. But despite these efforts, Fannie Mae's stock value dropped sharply.
Government Takeover in 2008
On September 7, 2008, the government took control of Fannie Mae and Freddie Mac. This was a big step to prevent a total financial crisis. The government took over the companies because they were facing huge losses. If they had failed, it would have caused major problems for the entire U.S. economy and even globally.
The government replaced the leaders of both companies. It also took a large ownership stake in them. The goal was to keep the housing market stable. The government also increased the national debt limit to prepare for the costs of supporting these companies.
Later Years
In 2010, Fannie Mae's stock was removed from the New York Stock Exchange. It now trades on a different market.
By 2013, Fannie Mae started to make a profit again. It began paying back money to the U.S. Treasury. By the end of 2014, Fannie Mae had paid back more money to the Treasury than it had received in support.
In 2015, a court ruled that some companies had not been truthful about mortgage-backed securities they sold to Fannie Mae. This led to large penalties being paid to Fannie Mae and Freddie Mac.
How Fannie Mae Works
Fannie Mae helps the housing market in a few ways. It borrows money at low rates by selling bonds. Then, it uses that money to buy home loans from banks. It takes these loans and turns them into mortgage-backed securities (MBS). These MBS are then sold to investors.
Fannie Mae's job is to make sure banks always have money to lend for homes. Because Fannie Mae is a government-sponsored company, many people believe the government would help it if it got into trouble. This allows Fannie Mae to borrow money at very low rates. This difference between what it borrows for and what it earns is how it makes money.
Fannie Mae also earns money by charging fees. These are called "guaranty fees." It gets these fees for promising that investors will get their payments on time, even if a homeowner stops paying their mortgage.
Conforming Loans
Fannie Mae sets rules for the types of loans it will buy. These are called "conforming loans." There is a limit on how large a loan can be to be considered "conforming." This limit is set each year based on home prices.
If a loan is larger than this limit, it's called a "jumbo loan." Fannie Mae usually does not buy jumbo loans. This means it can be harder for banks to sell these larger loans. Because of this, jumbo loans often cost borrowers more money.
Government Support
Even though Fannie Mae is a private company, it has special ties to the government. It has a direct line of credit to the U.S. Treasury. This connection gives it an "implied guarantee." This means that even though the government doesn't directly promise to pay back Fannie Mae's debts, many people believe it would.
This implied guarantee helps Fannie Mae save billions of dollars each year on borrowing costs. It also means Fannie Mae can operate with less money set aside than other financial companies. This allows it to lend more, but it also means it takes on more risk. Fannie Mae is also exempt from some state and local taxes.
Leadership
Chief Executive Officers
- Priscilla Almodovar (2022–present)
- Hugh R. Frater (2018–2022)
- Timothy Mayopoulos (2012–2018)
- Michael Williams (2009–2012)
- Herbert M. Allison (2008–2009)
- Daniel Mudd (2005–2008)
- Franklin Raines (1999–2004)
- James A. Johnson (1991–1998)
- David O. Maxwell (1981-1991)
- Allan O. Hunter (1970–1981)
Related Laws
In 2013, a bill was introduced in Congress called the "Budget and Accounting Transparency Act of 2014." If this bill had passed, it would have changed how Fannie Mae and Freddie Mac are counted in the government's budget. Their debt would have been included in the national debt. The goal was to make government accounting more accurate.
See also
In Spanish: Fannie Mae para niños
- Canada Mortgage and Housing Corporation – Canadian equivalent
- Freddie Mac
- Government National Mortgage Association
- State of New York Mortgage Agency – New York equivalent
