Home : Blogs : Roger Hunt : Roger 's Blog

U.S. Housing Industry-Fannie Mae & Mortgage Backed Securities

Fannie Mae is a part of the U.S. housing industry. Although they don't lend money directly to home buyers, they make sure mortgage funds are consistently available and affordable by buying mortgages from a variety of institutions that do lend money directly to home buyers.

The lenders with whom FNMA does business with are part of the primary mortgage market -- the place where mortgages are originated and funds are loaned to borrowers. Primary market lenders include mortgage companies, savings and loans, commercial banks, credit unions, and state and local housing finance agencies.

Lenders sell mortgages into the secondary market -- the place where mortgages are bought and sold by various investors. Secondary market investors include Fannie Mae, various pension funds, insurance companies, securities dealers, and other financial institutions.

Once a mortgage is originated, lenders have a choice. They can either hold the mortgage in their own portfolios or they can sell the mortgages to secondary market investors, such as Fannie Mae. When lenders sell their mortgages, they replenish their funds so they can turn around and lend more money to home buyers.

Lenders can sell mortgages to Fannie Mae that comply with their guidelines and loan limits. This is in keeping with Fannie Mae's mission to help more low-, moderate-, and middle-income people buy homes. FNMA loan limits are adjusted each year, in response to changes in housing affordability nationwide.

Fannie Mae operates exclusively in the secondary mortgage market, where they help to ensure that money for mortgages is available to home buyers in every state across the country, every day. FNMA does this in two ways. First, they pay cash for mortgages that they buy from lenders and hold those mortgages in their portfolio. The lenders in turn can use that money to make more mortgages for more home buyers. Second, they issue what are known as Mortgage-Backed Securities (MBS) in exchange for pools of mortgages from lenders. These MBS provide the lenders with a more liquid asset to hold or sell. Fannie Mae MBS are highly liquid investments and are traded on Wall Street through securities dealers.

In order to fund the mortgages FNMA buys, they issue debt securities to investors. A significant part of our earnings is derived from the difference between the yield on those mortgages and the cost they endured to buy them. When they issue MBS, they guarantee that investors will receive timely principal and interest payments regardless of what happens to the underlying mortgages. In return for the guaranty, FNMA earns a fee. These fees are another source of Fannie Mae's income.

As part of the secondary market, Fannie Mae's role in providing a steady stream of mortgage funds to lenders across the country is complemented by new technologies that make the process of buying a home quicker, easier, and less expensive. FNMA has developed automated systems that lenders are using nationwide - which allow many of their home-buying customers to get approved for a mortgage loan more quickly and affordably than ever before.

Roger Hunt

Private Mortgage Advisors (an affiliate of Wells Fargo Bank, N.A.)

Burlingame,CA 94010

650.796.0326

www.rogerhunt.com

roger.m.hunt@wellsfargo.com

Posted by Roger Hunt on 11/13/2008 06:32 PM

Comments (0)

mortgage backed securities, fnma, real estate loans, mortgage, roger hunt, private mortgage advisors, wells fargo, burlingame, san mateo

0 Comments on U.S. Housing Industry-Fannie Mae & Mortgage Backed Securities