Fannie Mae is a secondary mortgage market participant, so it does not originate mortgage loans.
Fannie Mae’s job is to keep funds flowing to lenders by purchasing or guaranteeing mortgages issued by banks, credit unions, thrifts, and other financial institutions.
Fannie Mae is one of the two large purchasers of mortgages in the secondary market. Its sibling Freddie Mac is the other purchaser also called the Federal Home Loan Mortgage Corporation, which also is a GSE chartered by Congress.
Fannie Mae, pools mortgages to form mortgage-backed security (MBS) after purchasing them on the secondary market.
The institutions, like investment banks, insurance companies, and pension funds, purchase Fannie Mae’s mortgage-backed securities.
Fannie Mae also has its own portfolio, which is called a retained portfolio, it invests in its own and other institutions’ mortgage-backed securities. A debt called agency debt is issued by Fannie Mae to fund its retained portfolio.
Liquidity is created for lenders by Fannie Mae’s investing in the mortgage market, which in turn allows them to underwrite or fund additional mortgages.
Last year, Fannie Mae provided $1.4 trillion in liquidity to the mortgage market, this helped low-income Americans to buy, refinance, or rent approximately six million homes.
From 1968 Fannie Mae has been publicly trading, it traded on the New York Stock Exchange (NYSE) till 2010.
Fannie Mae was forced to delist its shares for failure to meet the minimum closing price requirement mandated by the NYSE after the Great Recession and the impact it had on the housing market. Now Fannie Mae trades over-the-counter.
Fannie Mae and Freddie Mac were taken over by the government through a conservatorship of the Federal Housing Finance Agency (FHFA) in the second half of 2008.
To keep both agencies debt-free the U.S. Treasury provided $191 billion, which has since been repaid.
The terms governing Fannie Mae’s dividend obligations were changed in August 2012, so that the U.S. Treasury claimed any profits at the end of each quarter and if there is a deficit it provided capital.
The Treasury and FHFA publicized in September 2019, that Fannie Mae and Freddie Mac could begin keeping their earnings to hold up capital reserves of $25 billion and $20 billion, respectively.
This move was progressing toward transitioning the two out of conservatorship.