Fannie Mae

Fannie Mae
source
Name	Fannie Mae
Formed	0 1938
Jurisdiction	United States
Headquarters	Washington, D.C.
Chief1 name	Priscilla Almodovar
Chief1 position	CEO
Parent agency	Federal Housing Finance Agency (conservatorship)

Fannie Mae. Officially the Federal National Mortgage Association, is a government-sponsored enterprise (GSE) created by the United States Congress in 1938 as part of the New Deal. Its primary mission is to expand the secondary mortgage market by securitizing mortgages in the form of mortgage-backed securities, thereby increasing the availability and affordability of mortgage credit. The corporation was privatized in 1968 but entered into government conservatorship following the 2008 financial crisis, where it remains a critical yet controversial pillar of the American housing finance system.

History

The agency was established in 1938 during the administration of Franklin D. Roosevelt to provide local banks with federal money to finance home loans, aiming to stimulate the housing market during the Great Depression. In 1954, it was transformed into a mixed-ownership corporation, and in 1968, to remove its activity from the federal budget, it was partitioned into the current privatized Fannie Mae and the new Government National Mortgage Association (Ginnie Mae). The Housing and Community Development Act of 1992 mandated that Fannie Mae and its counterpart Freddie Mac meet specific affordable housing goals, expanding their footprint. The subprime mortgage crisis exposed profound vulnerabilities in its business model, leading to its placement into conservatorship under the Federal Housing Finance Agency in September 2008 via the Housing and Economic Recovery Act of 2008.

Business model

Fannie Mae does not originate mortgages but operates by purchasing them from approved lenders such as JPMorgan Chase, Wells Fargo, and Bank of America. These loans are then either held in its own portfolio or, more commonly, pooled and securitized into mortgage-backed securities (MBS) that are sold to global investors on the capital markets. This process provides lenders with liquidity to underwrite more loans. The corporation charges guarantee fees for assuming the credit risk on these securities and also earns income from its retained investment portfolio. Its operations are closely tied to the direction of monetary policy and Treasury yields.

Role in the housing market

As a dominant force in the secondary mortgage market, Fannie Mae is instrumental in providing stability, liquidity, and affordability to the U.S. housing finance system. By setting standardized underwriting guidelines, it influences lending practices nationwide. Its activities help lower interest rates for homebuyers and support the 30-year fixed-rate mortgage, a cornerstone of American homeownership. Along with Freddie Mac and Ginnie Mae, it backs a majority of new mortgage originations, making the housing market deeply reliant on its function. Its guidelines and pricing also significantly impact the multifamily housing and rental market.

Government conservatorship

Since September 7, 2008, Fannie Mae has been under the conservatorship of the Federal Housing Finance Agency (FHFA), a move coordinated with the United States Department of the Treasury. Under this arrangement, the FHFA controls the company's operations, while the Treasury provides critical financial backing through a Senior Preferred Stock Purchase Agreement. All profits are swept to the Treasury, and the future structure of the GSEs remains a subject of protracted debate in Congress. Multiple legislative proposals, such as those from the Senate Banking Committee and the House Financial Services Committee, have failed to produce a consensus on a post-conservatorship housing finance system.

Controversies and criticism

Fannie Mae has faced intense scrutiny over its history, particularly regarding its role in the 2008 financial crisis. Critics, including the Federal Reserve Bank of St. Louis and former Fed Chairman Alan Greenspan, have argued its implicit government guarantee created moral hazard, encouraging excessive risk-taking. The corporation was also embroiled in a major accounting scandal in the early 2000s, leading to investigations by the Securities and Exchange Commission and the departure of CEO Franklin Raines. Ongoing debates center on whether it crowds out private capital, its massive footprint creates systemic risk, and the appropriate path for GSE reform to protect taxpayers.

Category:Government-sponsored enterprises of the United States Category:Housing in the United States Category:Financial services companies based in Washington, D.C.