Fannie Mae Mortgage Loans: A Comprehensive Guide

Fannie Mae mortgage loans are a popular choice for homebuyers and refinancers, and for good reason. They offer competitive interest rates and flexible loan terms.

Fannie Mae is a government-sponsored enterprise, which means it's backed by the US government, making it a low-risk option for borrowers. This backing allows Fannie Mae to offer more favorable terms, such as lower interest rates and lower down payment requirements.

To qualify for a Fannie Mae loan, you'll need a decent credit score, typically 620 or higher, and a stable income history. This is because Fannie Mae uses a risk-based pricing model to determine loan terms.

Fannie Mae offers a range of loan programs, including fixed-rate and adjustable-rate mortgages, as well as conventional and government-backed loans.

Fannie Mae was established in 1938 by the US Congress during the Great Depression as part of President Franklin Roosevelt's New Deal to grow the mortgage market by securitizing mortgages.

Its initial role was to buy only mortgages insured by the Federal Housing Administration, but in 1968, Fannie Mae transitioned to a quasi-governmental corporation owned by shareholders, allowing it to buy any mortgage, including those listed on the New York Stock Exchange.

In 1992, President George H. W. Bush signed the Housing and Community Development Act, which amended Fannie Mae's charter to require it to meet affordable housing goals set by the Department of Housing and Urban Development.

Fannie Mae was established in 1938 by the US Congress as part of the New Deal to manage the effects of the Great Depression on the economy.

Its initial role was to grow the mortgage market by securitizing mortgages, allowing lenders to reinvest assets into more lending and reduce reliance on local savings and loan associations.

Fannie Mae was initially limited to buying only mortgages insured by the Federal Housing Administration.

In 1968, Fannie Mae transitioned from a government entity to a quasi-governmental corporation owned by shareholders, which enabled it to buy any mortgage.

The 1990s were a pivotal time for Fannie Mae, with significant changes to its operations and goals.

In 1992, President George H. W. Bush signed the Housing and Community Development Act, which amended Fannie Mae's charter to require it to facilitate affordable housing for low- and moderate-income families.

The Act also set "affordable housing goals" for Fannie Mae, which were annually set by the Department of Housing and Urban Development (HUD) and approved by Congress. The initial goal was 30% of total mortgage purchases, increasing to 55% by 2007.

Fannie Mae was under pressure from the Clinton administration to expand mortgage loans to low and moderate income borrowers in distressed inner city areas designated in the Community Reinvestment Act (CRA) of 1977.

As Fannie Mae moved into the subprime market, The New York Times reported in 1999 that the corporation was taking on significantly more risk, which may have posed difficulties in an economic downturn.

The 2000s was a transformative time for Fannie Mae. The company's stock price soared, reaching an all-time high of $83.13 in 2004.

Fannie Mae's growth was fueled by its expansion into the subprime mortgage market. This move allowed the company to originate and purchase mortgages from a wider range of borrowers.

By the mid-2000s, Fannie Mae had become a major player in the mortgage market, accounting for nearly half of all mortgage originations. Its stock continued to rise, attracting investors and further boosting the company's growth.

However, the company's aggressive expansion into subprime mortgages would ultimately contribute to the housing market bubble that burst in 2008.

The 2008 crisis was a pivotal moment in Fannie Mae's history. It was caused by a housing market bubble that burst, leading to a global financial crisis.

Fannie Mae's role in the crisis was significant, as it had invested heavily in mortgage-backed securities. These securities were based on subprime mortgages, which had been given to borrowers who couldn't afford them.

The crisis led to a massive bailout of Fannie Mae, with the US government providing $150 billion in funding to keep the company afloat. This was a major turning point for Fannie Mae, as it marked a significant shift in the company's role in the US housing market.

Fannie Mae's CEO at the time, Daniel H. Mudd, was criticized for his handling of the crisis. He had failed to adequately prepare for the housing market downturn.

The crisis led to a major overhaul of Fannie Mae's business model, including the creation of new regulations and oversight bodies.

In 2008, Fannie Mae and Freddie Mac went under the conservatorship of the Federal Housing Finance Agency (FHFA). This marked the beginning of a new era for the two entities.

Fannie Mae's stock had been trading on the New York Stock Exchange (NYSE) since 1968. However, in 2010, the company's stock price plummeted, causing it to be delisted from the NYSE.

The Federal Housing Finance Agency directed the delisting after Fannie's stock traded below $1 a share for over 30 days. This was a significant blow to the company's reputation and finances.

Since the delisting, Fannie Mae's stock has continued to trade on the Over-the-Counter Bulletin Board. This change in trading platform has had a lasting impact on the company's operations and future plans.

In 2011, the FHFA sued 18 financial institutions, including JPMorgan Chase, accusing them of selling mortgage-backed securities to Fannie and Freddie that had different and more risky characteristics than the descriptions contained in the marketing and sales materials.

Fannie and Freddie sustained massive losses on these securities, requiring a bailout of over $187 billion, and have been controlled by the FHFA since their 2008 rescue.

The FHFA is reportedly seeking $4 billion from JPMorgan to resolve its claims over $33 billion worth of securities sold to Fannie and Freddie by JPMorgan, Bear Stearns, and WaMu.

Bank of America, which acquired Countrywide and Merrill Lynch during the crisis era, could be on the hook for even more, facing claims from the FHFA over $57 billion worth of mortgage bonds.

The proposed JPMorgan settlement covers only civil charges, and would not settle the question of whether any individual executives engaged in wrongdoing.

In 2015, a U.S. District Court judge ruled against Nomura Holdings Inc., stating they weren't truthful in describing mortgage-backed securities sold to Fannie Mae and Freddie Mac.

Judge Denise Cote asked the Federal Housing Finance Agency (FHFA) to propose updated damages to be paid by Nomura and co-defendant RBS Securities Inc. The original damages requested by the FHFA were around $1.1 billion.

This ruling brought an end to a rare trial addressing alleged mortgage-related infractions committed during the housing boom.

More than a dozen firms had already chosen to settle similar allegations with the FHFA, resulting in $18 billion in penalties for Fannie and Freddie.

Nomura was accused of not accurately describing the quality of loans in their offering documents for mortgage-backed securities.

Judge Cote wrote that the magnitude of falsity in Nomura's documents was enormous.

Fannie and Freddie had invested billions of dollars in mortgage-backed securities issued by companies like Nomura during the housing boom.

Those investments contributed to steep losses that led to the companies' 2008 government takeover.

Nomura and RBS were two of 18 financial institutions targeted by the FHFA in 2011 for allegedly lying about the quality of loans underlying the securities.

The government plays a significant role in the mortgage market, particularly with Fannie Mae and Freddie Mac. Fannie Mae and Freddie Mac often guarantee payment of principal and interest on their mortgage-backed securities in exchange for a fee to reduce the investors' risk.

Government involvement with Fannie Mae and Freddie Mac is substantial, with the government implicitly guaranteeing their loans. Investors generally assume the government will bail out Fannie Mae and Freddie Mac if necessary.

In 2008, the FHFA put Fannie Mae and Freddie Mac into conservatorship due to major losses and a large share of owned and guaranteed loans. This move was made because the FHFA determined the GSEs would soon become insolvent.

Fannie Mae and Freddie Mac received a bailout of nearly $190 billion from the government, which they've since paid back.

Fannie Mae makes money by borrowing at low rates and reinvesting its borrowings into whole mortgage loans and mortgage-backed securities. It borrows in the debt markets by selling bonds and provides liquidity to loan originators by purchasing whole loans.

Fannie Mae's mortgage portfolio was in excess of $700 billion by August 2008, an enormous amount of money that shows the scope of its operations. This large portfolio is a result of its ability to borrow inexpensively in the debt markets.

Fannie Mae earns a significant portion of its income from guaranty fees it receives for assuming the credit risk on mortgage loans. This fee is a crucial part of its business model, allowing it to provide liquidity to loan originators and making it a key player in the mortgage industry.

Fannie Mae's charter has historically prevented it from guaranteeing loans with a loan-to-value over 80% without mortgage insurance or a repurchase agreement with the lender. However, in 2006 and 2007, Fannie Mae did purchase subprime and Alt-A loans as investments.

Here's a brief overview of Fannie Mae's business mechanism:

Fannie Mae buys mortgages from banks, credit unions, and lenders, giving financial institutions the ability to continue to extend credit.

Fannie Mae purchases and guarantees mortgages that meet strict criteria, such as a conforming loan limit set by the Office of Federal Housing Enterprise Oversight (OFHEO). The conforming loan limit is 50 percent higher in Alaska and Hawaii.

Fannie Mae's automated underwriting system, Desktop Underwriter (DU), allows lenders to automatically determine if a loan is conforming. The secondary market for non-conforming loans includes jumbo loans, which are loans larger than the maximum that Fannie Mae and Freddie Mac will purchase.

Fannie Mae earns a significant portion of its income from guaranty fees it receives as compensation for assuming the credit risk on mortgage loans underlying its single-family Fannie Mae MBS and on the single-family mortgage loans held in its retained portfolio.

Fannie Mae provides liquidity to loan originators by purchasing whole loans and then securitizing them for the investment market by creating MBS. This gives the United States housing and credit markets flexibility and liquidity.

Fannie Mae has a limit on the maximum sized loan it will guarantee, known as the conforming loan limit. The conforming loan limit for Fannie Mae, along with Freddie Mac, is set by OFHEO annually based on the October to October changes in mean home price.

Fannie Mae's mortgage portfolio was in excess of $700 billion by August 2008. Fannie Mae also has a RefiNow program that offers low-income mortgage holders a refinance option to reduce monthly payments and interest rates.

Fannie Mae's RefiNow program requires a reduction in the homeowner's interest rate by a minimum of 50 basis points and savings of at least $50 in the homeowner's monthly mortgage payment. The program is available to homeowners earning at or below 100% of their area median income (AMI).

Here's a summary of the key benefits of Fannie Mae's business mechanism:

Fannie Mae and Freddie Mac support the mortgage market in the U.S. by purchasing mortgage loans from lenders that originate them. This is a crucial function that helps keep the mortgage market stable.

Both Fannie Mae and Freddie Mac are regulated by the Federal Housing Finance Agency (FHFA). This regulatory oversight is essential for maintaining the integrity of the mortgage market.

Their business model allows them to purchase mortgage loans, which helps lenders to free up capital to make new loans. This process is a vital part of the mortgage market's functioning.

In 2011, the FHFA sued 18 financial institutions, including JPMorgan Chase, for selling securities that had different and more risky characteristics than described.

The agency is seeking $4 billion from JPMorgan to resolve claims over $33 billion worth of securities sold to Fannie and Freddie. Bank of America is facing similar claims over $57 billion worth of mortgage bonds.

The FHFA has already settled with Swiss lender UBS for $885 million and with Citigroup and General Electric for undisclosed sums.

Fannie Mae was under investigation for its accounting practices in late 2004. The Office of Federal Housing Enterprise Oversight released a report on September 20, 2004, alleging widespread accounting errors.

The company was expected to spend over $1 billion in 2006 to complete its internal audit and come into compliance. This was a significant amount, equivalent to over $1.45 billion in today's dollars.

Concerns about Fannie Mae's business and accounting practices predated the scandal itself. The House Banking Subcommittee On Capital Markets, Securities And Government-Sponsored Enterprises held hearings on Fannie Mae on June 15, 2000.

Regulators filed 101 civil charges against Fannie Mae's CEO, CFO, and former controller in 2006. The three executives were accused of manipulating earnings to maximize their bonuses.

The lawsuit sought to recoup over $115 million in bonus payments and about $100 million in penalties. After 8 years of litigation, the government's case was dismissed, and the executives were cleared of wrongdoing.

Conflict of interest is a serious issue in the financial industry. In 2008, The Wall Street Journal reported that two former CEOs of Fannie Mae, James A. Johnson and Franklin Raines, received loans below market rate from Countrywide Financial.

Fannie Mae had a significant business relationship with Countrywide, buying many of their mortgages. The "Friends of Angelo" VIP Countrywide loan program included many people from Fannie Mae, including lawyers and executives.

Lawmakers who receive contributions from Fannie Mae and Freddie Mac often sit on committees that regulate their industry. This includes the House Financial Services Committee, the Senate Banking, Housing & Urban Affairs Committee, and the Senate Finance Committee.

These committees have significant power over the financial industry, making it a conflict of interest for lawmakers to receive contributions from companies they regulate.

If you're facing financial hardship and struggling to make your mortgage payments, you have options. Fannie Mae and Freddie Mac offer various foreclosure workout options to help you avoid foreclosure. One possibility is a Flex Modification, a unique loan modification program for borrowers with GSE-owned loans that generally lowers an eligible borrower's mortgage payment by around 20%.

A six-month payment deferral is another option for borrowers facing financial hardship. This allows you to keep the same monthly mortgage payment and move the past-due amounts to the end of the loan as a non-interest bearing balance, which becomes due and payable at maturity, sale, refinance, or payoff.

To qualify for a payment deferral, you must have resolved a temporary hardship and resumed your monthly contractual payments but can't afford either a reinstatement or repayment plan to bring the mortgage loan current. There are two types of payment deferral options: a regular payment deferral option for mortgages that are a couple of months overdue, and a disaster payment deferral option that helps borrowers with a disaster-related hardship return their mortgage to a current status after up to 12 months of missed payments.

Here's a summary of the foreclosure workout options:

These options can provide relief and help you get back on track with your mortgage payments.

In 2013, Representative Scott Garrett introduced the Budget and Accounting Transparency Act of 2014 into the United States House of Representatives.

The bill, known as H.R. 1872, aimed to modify the budgetary treatment of federal credit programs like Fannie Mae and Freddie Mac.

The proposed changes would require that the cost of direct loans or loan guarantees be recognized in the federal budget on a fair-value basis using guidelines set forth by the Financial Accounting Standards Board.

This would mean that Fannie Mae and Freddie Mac would be counted on the budget instead of considered separately, and their debt would be included in the national debt.

The goal of the bill is to improve the accuracy of how some programs are accounted for in the federal budget.