FAQ: What is Fannie Mae and why should I care?

Today, Fannie Mae (Federal National Mortgage Association - FNMA) is a private, shareholder-owned company that works to make sure mortgage money is available and affordable for of homeownership of low-, moderate-, and middle-income Americans. Although Fannie Mae does not lend money directly to home buyers, it works with lenders to make sure they do not run out of mortgage funds, so more people can achieve the dream of homeownership.

In 1968, Fannie Mae became a private company operating with private capital on a self-sustaining basis. Its role was expanded to buy mortgages beyond traditional government loan limits, reaching out to a broader cross-section of Americans.

Fannie Mae operates under a congressional charter that directs them to channel their efforts into increasing the availability and affordability of homeownership for low-, moderate-, and middle-income Americans. Yet Fannie Mae receives no government funding or backing. Fannie Mae is one of the nation's largest taxpayers as well as one of the most consistently profitable corporations in America.

FNMA currently buys FHA and VA graduated payment mortgages, adjustable-rate mortgages, and conventional fixed-rate first and some qualifying second mortgages on dwellings of one to four units. A loan that meets FNMA's underwriting criteria and dollar amount is known as a conforming loan.

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As the above charts shows, Fannie Mae has had a spectacular rise and fall.  I started thinking about this when I read a book review on Vanity Fair for 'Fannie Mae's Last Stand':

"Many believe the government-backed mortgage giants known as Fannie Mae and Freddie Mac were major culprits in the economic meltdown. But, for decades, Fannie Mae had been under siege from powerful enemies, who resented its privileged status, its hard-driving C.E.O.'s, and its huge profits. Surveying Fannie's deeply dysfunctional relationships with Congress, the White House, and Wall Street, the author tells of the long, vicious war-involving most of Washington's top players-that helped propel one of the world's most successful companies off a cliff."

It sure does look like Fannie went off a cliff in 2008.... doesn't it?

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A healthy Fannie Mae implies a healthy housing and mortgage market.  While I am not advocating that Fannie Mae needs to return to her height of glory, it does seem that this would be a good barometer to watch for signs of economic recovery.  When the secondary mortgage markets begins to function and credit begins to flow at a normal pace, then many of today's buying opportunities will disappear.  Making today, a good time to buy....  see homes for sale in Dallas Fort Worth.