Federal National Mortgage Association commonly known as Fannie mae is a federal government agency created in 1938. It comes as a result of an amendment to the National housing Act. The prime purpose of this agency was to buy mortgages that were insured by the Federal Housing Administration and then it also provided the services of loans that were guaranteed by Veterans Administrations.
Another legal amendment changed its status In 1954 to a public-private, mixed ownership corporation. Lately, the year of 1968 made it privately owned, which it later own permitted to buy conventional mortgages along with FHA and VA loans. The agency increased liquidity in the mortgage industry by providing mortgage backed securities in the 1980s. They provide debt securities inside the U.S and in international markets and earn money to get mortgage related assets.
What Do Fannie Mae Actually Do?
Primarily, Fannie Mae buys mortgage from lenders and to hold onto their portfolios or resell them as mortgage backed securities. This benefits the lenders while they use the money to invent more loans.
In the broader perspective, this provides individual, masses and investors a stable and continuous change of mortgage funding. The charter of Fannie mae says that it will establish a secondary market which will provide ease in accessing residential mortgages.
Fannie mae also holds the responsibility of owning and keeping the liquidity of federally owned mortgage properties and work to minimize their losses.
How to Apply for a Fannie Mae-Backed Mortgage
If you are looking for a Fannie mae backed loan and you got a lender who has agreed to do so, then the next stage is very easy. You will have to fill out a form named uniform residential loan application. You will be asked to provide your financial information and documentation. A record of your employment and gross income will also be needed. As you are applying for a loan, you have to provide you monthly debt obligations which will include balances, credit cards etc.
Normally, the lender will follow the 28\36 rule, that says, the borrower is not allowed to spend more than 28% of the monthly income on housing expenses. Also, 36% of debt servicing will be allowed in terms of mortgages and car loans.
A maximum of 36% debt to income is allowed under the rules of Fannie mae. But if the borrower can meet their credit score, this ratio can go up to 45%. In any case, if your DTI is too high as per their rules then you have to pay a large down payment. This will reduce your cost every month.
Fannie Mae Loans
If you wish to obtain Fannie Mae loans you must seek a lender that is funded by Fannie Mae. The lender should meet the criteria of Fannie Mae and provides guarantee of quality financing. Any mortgages bought through them are known as conforming loans. These loans usually have low interest rates.
Fannie mae also came up with loan modifications to safeguard borrowers that are heading towards default. It helps the borrowers by bringing some modifications to their existing mortgage plans, saving them from losing their home or any other property. Usually, Fannie mae loan modifications, reducing the interest rate. It also lengthens the time period of loan payments.
The GSE status of Fannie Mae has made a certain perception in the market. The most prevalent was that these kinds of firms get into financial troubles. Government will take a step forward and bail out these organizations. It is known as Implicit guarantee.
This allows Fannie to borrow currency in the bond market at a low rate as compared to other organizations.
Role in the Financial Crisis of 2008
The monopoly of Fannie Mae is evident in the U.S market. A government supported monopoly with the implicit guarantee gives an edge to this organization. In the time of Global Financial crisis Fannie Mae experienced a great loss. It was predicted that these forms will soon collapse. Government provided large financial support to them in order to stabilize the economy. Taking a great debt from the market also shows that this organization was in great trouble. Economists conclude that these firms took certain wrong steps and created losses for the government. Critics say that the government must take steps to minimize the risks of losses in the time of crises.
The COVID-19 Pandemic Relief
Covid-19 has impacted everyone and people are finding it difficult to meet their needs in this crisis time. In these difficult times it is hard to pay your mortgage payments. You don’t have to worry. Fannie mae came up with a mortgage relief program. This program is basically a forbearance plan that will suspend your mortgage payments for an year. this will cost you no charges. After the 1 year period, the repayment will continue. This will save you from foreclosure.
If you want to avail this service, you call your mortgage servicer or the company number listed on your monthly statement. They will guide you for further procedure.
Fannie mae is also giving another plan called the Disaster response network. This program is also in awake of COVID-19 emergency. This will work with HUD-approved house counselors that are working with Fannie mae cooperation. They will give a new plan for payments, financial guidance and budgeting for next 18 months.
Fannie Mae HomePath
What happens when a Fannie Mae loan borrower gets into the foreclosure process ? If this happens, Fannie Mae sells the properties through a properly planned mechanism so that community will be saved from any side effects. HomePath.com is a Fannie Mae website that offers the house owners to sell their properties and in some cases, give special financing. These services are specially for those possessions that belong to Fannie Mae.