You’ve probably heard of Fannie Mae, but do you know how it plays a role in the mortgage market? The Federal National Mortgage Association or “Fannie Mae” is a government-sponsored enterprise that owns or guarantees many of the mortgages in the United States. If you have a Fannie Mae loan and are facing a foreclosure, various workout options are potentially available to you. Read on to find out what Fannie Mae does and how it functions.
Fannie Mae, along with its counterpart Freddie Mac, is a government-sponsored enterprise (GSE). This means that these companies are privately owned, but they receive support from the federal government. (To learn more about Freddie Mac, see Who—or What—Is Freddie Mac?)
Fannie Mae provides stable funding for the housing and mortgage markets, but it doesn’t make loans directly to home buyers. Rather, Fannie Mae supports the nation’s housing finance system though the secondary mortgage market. Here’s how the process works:
A borrower typically gets a home loan directly from a bank or mortgage company. In most cases, though, the original lender won’t hold on to the loan. Lenders usually sell the loans they originate to other banks or investors, like Fannie Mae, on what’s called the secondary mortgage market. The mortgages that Fannie Mae buys must meet strict criteria. These loans are called “conforming loans.” (To learn about different loan types, see What is the difference between a conventional, FHA, and VA loan?)
After buying loans from banks and mortgage companies, Fannie Mae either holds the mortgages in its portfolio or packages them into mortgage-backed securities, which it sells to private investors. This is called “securitization.” Fannie Mae often guarantees the loans that it sells to investors. Basically, Fannie Mae guarantees that an investor gets paid on the loan even if the borrower defaults.
Because Fannie Mae continually buys mortgages from banks and mortgage companies, lenders have a steady source of cash to keep making loans to new borrowers.
Borrowers with Fannie Mae loans who are struggling to make their mortgage payments get access to certain loan modification programs and other foreclosure avoidance options.
One option is the Flex Modification program, a special loan modification program for borrowers with Fannie Mae-owned loans. The Flex Modification program, which replaces the now-expired Home Affordable Modification Program (HAMP) program, is supposed to lower an eligible borrower’s mortgage payment by around 20%.
To get more information about Fannie Mae and how it works, go to the Fannie Mae website. To find out if Fannie Mae owns your mortgage loan, go to www.fanniemae.com/loanlookup or call 800-2Fannie (800-232-6643).