Fannie Mae, or more officially, the Federal National Mortgage Association, is an organization that maintains a secondary market in home mortgages. It does not provide mortgages to borrowers. Instead, this organization acts as an intermediary between lenders and qualified consumers. They purchase and guarantee mortgages targeted at moderate- to low-income borrowers.
It is a government-sponsored enterprise established in 1938 during the Great Depression and serves to increase homeownership and stabilize the U.S. housing market.
Essentially, Fannie Mae purchases mortgages from banks and then resells them. This process is known as “securitizing.” By buying these mortgages from the banks, it increases the liquidity of mortgage money, by freeing up banks to make more loans. The company may then sell these mortgages in bundles to investors, who then make money off the interest.
Mortgage brokers and lenders must apply to be backed by Fannie Mae. They must adhere to strict guidelines and underwriting criteria to be eligible. For example, one requirement is that they are not allowed to process subprime loans. These subprime loans are high-risk investments to borrowers with poor credit and who usually, fall short of income requirements. Some lenders prefer subprime loans because they can charge high-interest rates.
To get a loan that is backed by them, you will need to apply through an approved lender. You can find a list of Mae lenders on their website www.fanniemae.com. If you already have a loan, you can check if your loan is backed by them by checking Fannie Mae’s consumer education initiative website knowyouroptions.com.
Once you have found an approved lender, you will need to fill out a Uniform Residential Loan Application as well as submit all required documentation. It is worth noting that this only works with confirming loans for residential properties. They also back mortgages up to a certain amount.
An additional benefit of a Fannie Mae-backed loan is the extra support you will receive with your mortgage. If you suddenly experience financial hardship, they can definitely work with you. They have financial programs that receive federal funding, such as the Flex Modification program. This program adjusts your loan so you can better manage the monthly payments.
Even though Fannie Mae does not lend money directly to people, it has a website called homepath.com. This website lists homes for sale that are held by Fannie Mae. It also connects buyers with lenders that specialize in Home Path financing.
Home Path financing offers financing options for buyers who may not be eligible for a conventional mortgage. These mortgage programs usually have lower interest rates and low eligibility restrictions. Additionally, the low down payment requirements make this a good option for middle- to low-income households.