Fannie Mae (Federal National Mortgage Association)

Fannie Mae, formally the Federal National Mortgage Association, is a congressionally chartered company that is one of the largest suppliers of home mortgage funding in the United States. Rather than lending directly to homebuyers, Fannie Mae buys mortgages from banks and other lenders, freeing up those lenders' capital to make new loans, and packages the purchased mortgages into mortgage-backed securities sold to investors.

Originally created in 1938 as a government agency during the Great Depression to expand the availability of mortgage credit, Fannie Mae was later converted into a shareholder-owned company, while still operating under a federal charter and a specific public mission to support the housing finance market.

When a bank makes a mortgage, it often does not keep that loan on its own books for 30 years. Instead, it frequently sells the mortgage to Fannie Mae (or its counterpart, Freddie Mac), which bundles many such mortgages together and sells the bundled package to investors as a security. This recycling of capital lets banks keep making new mortgages rather than running out of money to lend.

Because Fannie Mae sets standardized underwriting guidelines for the mortgages it will buy, those standards have an outsized influence on what mortgages ordinary lenders are willing to offer borrowers in the first place.

Fannie Mae was placed into federal conservatorship in 2008 during the financial crisis, after mounting losses on its mortgage holdings threatened its solvency, with the US government stepping in to guarantee its obligations and prevent a collapse that could have severely disrupted the broader mortgage market. It has remained under conservatorship since.

By purchasing mortgages and issuing mortgage-backed securities, Fannie Mae creates liquidity in the secondary mortgage market, allowing capital from bond investors worldwide to flow indirectly into funding American home loans.

Fannie Mae and Freddie Mac perform similar functions and are both government-sponsored enterprises under conservatorship, though they operate as separate companies with some differences in their specific underwriting guidelines and the lenders they primarily work with.

Fannie Mae sets conforming loan limits each year specifying the maximum loan size it will purchase in a given area, and mortgages exceeding this limit, known as jumbo loans, generally cannot be sold to Fannie Mae at all, which is part of why jumbo loans often carry somewhat different pricing and underwriting standards than conforming loans.

During periods of significant housing market stress, Fannie Mae has periodically introduced temporary loan modification and forbearance programs for borrowers facing hardship on loans it owns or guarantees, using its scale across millions of mortgages to implement relief measures more broadly and consistently than any single individual lender could manage alone.

Policymakers have debated for years how to eventually end Fannie Mae's government conservatorship, with proposals ranging from fully privatizing the company again to replacing it with a different structure entirely, though no definitive reform has yet been enacted, leaving the conservatorship arrangement established in 2008 still in place well over a decade later.

As a government-sponsored enterprise, Fannie Mae operates under regulatory affordable housing goals requiring it to purchase a meaningful share of mortgages serving low- and moderate-income borrowers and underserved markets, a policy objective layered on top of its core function of simply providing general liquidity to the broader mortgage market.

These housing goals are reviewed and reset periodically by its federal regulator, reflecting an ongoing policy judgment about how much of Fannie Mae's enormous purchasing volume should be directed toward explicitly serving underserved segments of the housing market.