Fannie Mae | Federal National Mortgage Association | Finance Strategists

Fannie Mae | Federal National Mortgage Association | Finance Strategists

hi i'm rainey with finance strategist in this lesson we're going to cover [Music] fannie mae refers to the federal national mortgage association or fnma it is the government-sponsored entity tasked with increasing mortgage lending availability and expanding home ownership in the united states especially among low and moderate-income borrowers established in 1938 as part of roosevelt's new deal fannie mae was commissioned by congress to purchase or guarantee existing mortgage loans to allow banks and other mortgage issuers freed up capital for issuing additional loans [Music] fannie mae typically purchases mortgage loans from larger commercial banks and its sibling freddie mac or the federal home loan mortgage corporation typically purchases mortgage loans from smaller banks and lenders fannie mae and freddie mac are largely responsible for the creation of a secondary mortgage market which buys pre-existing mortgages after fannie mae has purchased a pre-existing loan and the underlying mortgage it will package a group of these mortgages into a financial instrument known as a mortgage-backed security fannie mae will sell the mortgage-backed securities and guarantee the investment using the home associated with the mortgage as collateral there are two regulations on fannie mae put in place to allow this model to work first fannie mae is only able to guarantee loans up to the conforming loan limit which is anything lower than the annual mean housing price of an area second fannie mae is legally compelled to purchase any loans which meet its underwriting standards regardless of economic conditions any loan above the conforming loan limit is called a jumbo loan because jumbo loans are not purchased by fannie mae there is significantly less demand in the market for them making loans above the mean home value much more expensive ranging from 8.25 to 1.5 percent increased apy although still an important player in the secondary mortgage market today fannie mae suffered significant losses during the 2008 financial crisis and many private label securitization entities have filled the supply gap in the secondary mortgage market to summarize fannie mae purchases mortgages from the original lender in order to free up the lender's capital to offer additional loans especially among low and moderate income borrowers in order for fannie mae to continue purchasing more pre-existing mortgages on the secondary market it creates and sells mortgage-backed securities which provide interest to the investors as well as collateral to provide some backing on the investment let's hear from you why did the pooling together of subprime mortgages create false investor confidence and lead to the financial crisis of 2008.

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