Fannie Mae And You

[Jun 19, 2008.]

Home mortgages are an important part of the United States and global economies. Mortgages which have been around for several decades have caused their fair share of market upheavals, some for the good and some for the bad.

A mortgage is a loan using the home property as collateral. Many take out mortgages in order to buy homes (which places a lien on the property), new cars, and pay for hospital bills and funeral expenses only to mention a few. Mortgages are offered to, primarily, borrowers with a good credit score and can come in several shapes and sizes. The past few years have seen the growth of the sub prime mortgage market. Sub prime mortgages are given to those who may not have otherwise been able to afford a mortgage or a home and have resulted in the current housing mess due to Adjustable Rate Mortgages adjusting at a higher interest rate catching many owners off guard and unable to pay.

Many of those borrowers who used a mortgage in the past never really gave much thought to what it was, and where that money came from. This changed with the start of the housing market collapse. Consumers now see the importance of research and understanding. Fannie Mae has a large hand in the mortgage market and while the company may not directly affect consumers it does have an effect that should be noted.

Created in 1938 as a part of the New Deal, the Federal National Mortgage Association has helped consumers buy homes with the aide of mortgages. Commonly known as Fannie Mae, a name that is far easier to say, and much catchier, this company has provided a sense of stability to the primary housing market.

Fannie Mae is a privately owned company and is not backed by the government. The company achieved this status in 1968. Now, Fannie Mae is part of the secondary housing market. This means, that instead of lending money directly to consumers, Fannie Mae makes sure that funds are available to the brokers and lenders of mortgages. Fannie Mae buys mortgages from those companies and brokers that deal with borrowers face to face. Even though Fannie Mae is now a private institution they are considered a reliable source of funds. Many times, borrowers mistakenly believe that Fannie Mae does enjoy federal backing even though it does not this is because Fannie Mae is a trusted source of reliable and readily available funds.

The reason those primary lenders, the one that interact with borrowers across the desk sell, to secondary investors such as Fannie Mae is so that those lenders can replenish their money so they can then turn around and offer more loans.

Fannie Mae is a crucial part of the mortgage market as it provides a sense of security for lenders and in turn for borrowers. In today’s market, looking for a mortgage may seem intimidating and confusing as lenders are using far stricter guidelines in determining who to lend to. Consumers are advised to do some research before filling out those mortgage applications to take a bit of the fear out of the process.