What Is a Fannie Mae Loan?
- The U.S. Congress created GSEs to work with the federal government on behalf of American consumers. GSEs have the full backing of the U.S. government. The government does not directly control the operations or assets of GSEs because they are shareholder-owned and not government-owned companies. Due to the 2007 subprime mortgage crisis, the government placed Fannie Mae under federal conservatorship in 2008. Conservatorship means the government controls Fannie Mae's operations and assets.
- Lenders make mortgage loans directly to consumers. The lender may then choose to sell the loan on the secondary-mortgage market to Fannie Mae. By selling the loan, the lender generates additional funds to make new loans. Fannie Mae then owns the loan, but does not service it, which means it does not accept mortgage payments. Typically, a financial institution, sometimes the original lender, continues servicing the loan on behalf of Fannie Mae. Fannie Mae pays financial institutions a fee for servicing loans on its behalf.
- For lenders, mortgage loans tie up funds for years until borrowers pay off the loans. This leaves less money for making new loans, which causes the lender to increase the cost of borrowing, usually by charging higher interest rates. By selling these loans to Fannie Mae, lenders increase the amount of funds they have available to make new loans. Having more funds available for new loans keeps the cost of borrowing low, making buying a home more affordable for American consumers.
- The government may offer additional benefits for Fannie Mae-owned loans that may not be available to non-Fannie Mae loans. Borrowers have to contact their loan servicer to see which programs are available to them. Fannie Mae also offers a Deed-for-Lease program for the loans it owns. This program is for homeowners who do not qualify for refinance or modification programs. Deed-for-Lease allows the homeowner to transfer the deed of the home to their lender and then lease the property back as a renter.
