The Federal National Mortgage Association (FNMA) plays a key role in making home ownership a reality today. Popularly known as Fannie Mae, the association helps low and moderate-income borrowers to finance their dream home by introducing affordable mortgages.
The government-sponsored enterprise was founded in 1938 during the great depression. FNMA is now the largest backer of fixed-rate mortgages to facilitate home ownership. Everyone in the country is celebrating National Homeownership this month due to the fact that they are proud homeowners. All this was made possible by FNMA over the decades.
FNMA does not directly provide you with a mortgage, it rather avails the same from third-party providers and guarantees the mortgage via a secondary market. One of the main advantages is the transfer of risk of default from the bank to FNMA. In simple terms, the association purchases expensive market mortgages to restructure and provide the individuals with an access to affordable and reliable mortgage finance.
How does a secondary mortgage finance work?
Understanding how a secondary mortgage works will give you an insight into how FNMA functions. Read on to know the working of secondary mortgage finance.
The first step is to apply for a mortgage through a third-party lender. If the lender is qualified to collaborate with the association, you will be eligible for a lower the rate of the mortgage after the purchase. FNMA will combine similar mortgages taken from other potential homebuyers to reduce the risk of a default significantly. FNMA then offers a range of loans to investors by way of secondary sale. The investors will further provide financial security against any losses for the loans and make a profit from the interest earned on the monthly mortgage payments.
FNMA cleverly restructures these mortgages to ensure both the association and potential homebuyers who benefit from the mortgage scheme. An increase in the market stability, lower volumes of debt allowing lenders to issue more mortgages, and more capital available to reinvest in the loans are among the benefits of the mortgage program.
What is the function of FNMA?
The association dedicates resources to provide access, affordability, and liquidity in terms of the mortgage. This offers sustainable housing options. Buying real estate can be quite expensive, owing to the high interest rates and a repayment schedule that does not feature favorable terms. FNMA has managed to provide affordable finance to buy, refinance, and rent over 683,000 homes in total to this day.
Fannie Mae’s approach is very simple when it comes to financing affordable housing. The association helps finance almost the entire purchase price. The finance scheme allows aspiring homeowners like you to use various nontraditional income sources. FNMA also provides access to homeownership education for potential buyers to understand the financial benefits of a low-income mortgage.
Prepurchase counseling, additional tools, and resources guide potential homeowners through the complete purchase and mortgage process. One of the highlights of the low and moderate-income housing program is access to FNMA-owned loans option. The program features modification and foreclosure prevention post-purchase. With the help of these resources, buyers and homeowners manage to retain homes while avoiding foreclosure.
FNMA not only helps one purchase a home but also enables renters to find affordable housing option. A special Tenant-in-Place Rental program provides affordable leasing options and long-term housing schemes with Fannie Mae’s foreclosed homes.
Providing single-family mortgages, multifamily mortgages, reducing capital market risk, enhancing housing finance liquidity, and mainly education potential homeowners like you are some of the primary functions of FNMA.
How will you benefit with FNMA?
- The housing programs help current homeowners to benefit from affordable mortgage costs that are also readily available
- In case you qualify as a low or moderate income family, the FNMA funds you with a mortgage that is otherwise not affordable in the open market
- Low costs will translate into lower interest rates and origination fees
- Customizable mortgage programs are among one of the main benefits of affordable financing
Other similar programs include Freddie Mac and Ginnie Mae. Freddie Mac is a federal program created after FNMA gained popularity to further make options available for an affordable mortgage. Freddie Mac officially known as the Federal Home Loan Mortgage Corporation (FHLMC) was established in 1970.
Ginnie Mae alternatively known as The Government National Mortage Association offers an additional layer of protection for the investors who provide financial protection to mortgage bundles. Ginnie Mae is an initiative taken by the Department of Housing and Urban Development to guarantee timely payments of mortgage bonds.
The end goal of all three financial associations is to keep mortgage rates low to enable homebuyers to make use of the funds, free up much-needed capital to further secure loans, and attract secondary market investors to provide financial security on the bundled mortgage.
