Fannie Mae

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Table of Contents
Introduction………………………………………………………………………………………..3 History……………………………………………………………………………………………..3 Business Method and Philosophy…………………………………………………………………4 Corporate Growth and Diversity.…………………………………………………………………6 Conclusion………………………………………………………………………………………...7 References…………………………………………………………………………………………8 Figure Chart 1……………………………………………………………………………………10

Fannie Mae
Fannie Mae is a leading mortgage company and one of the most financially successful businesses within its industry. Given the salient features of the organization that has culminated into its current standing, this report offers a brief but concise overview of the corporation.

The organization began as a part of Roosevelt’s New Deal, a program initiated by the onslaught of worldwide economic depression in the 1930s and the complete collapse of the housing market. Chartered by Congress as the Federal National Mortgage Association in 1938, the organization’s principal mission was to encourage home ownership by providing local banks with money and ensuring the residential mortgage market is well funded by the creation of a secondary mortgage market (Cottle 1998, Allie Mae 2004).

In 1968 Lyndon B. Johnson transformed Fannie Mae into a “government sponsored enterprise” (GSE) due to the company’s complete monopolization of the second mortgage market (Cottle 1998). Cottle explains that, “as a GSE, the company is subject to congressional oversight and certain limitations on its activities, but it nonetheless is a privately operated, publicly traded, for-profit corporation charged with making money for its shareholders” (p. 18). The U.S. president gets to appoint several board members, and the U.S. Treasury Department approves Fannie Mae's debt issuance. And it has approved and approved and approved. Fannie Mae and Freddie Mac have virtually unlimited access to capital, at funding costs that are below the rates otherwise available on the market. In layman’s terms, this means that Fannie does not have to register securities with the government, they do not have to pay state or local income taxes, and because the government sponsors the corporation, they are seen as a governmental entity when they really are not which has accounted for the large financial growth within the organization’s history along with a nearly limitless channel to capital (Mckinley 1998).

As was mentioned previously, the organization’s principal aim is to ensure the residential mortgage market is well funded. Indeed, within the past 31 years, Fannie Mae has provided over $2.8 trillion of mortgage financing (PR News 2000) and has helped over 63 million families obtain their dream of owning a home (Fannie Mae 2006). You cannot simply call up Fannie Mae and ask its loan officers about the going rate on a seven-year ARM; it doesn't loan money to retail home buyers. Instead, it provides liquidity for lenders by providing liquidity in the secondary mortgage market. Fannie does this by purchasing mortgages from primary lenders, which can be banks or thrifts, enabling these lenders to finance more mortgages and then bundles the debts and resells them. A lender is any institution or individual who loans a borrower money. There are a number of types of lending organizations, including educational lenders, commercial lenders, hard money lenders, sub-prime lenders, and community credit unions.

Often a loan is brokered, meaning that the borrower is evaluated by a third-party who then proposes the loan request to a number of different lenders. These lenders are chosen based on their likelihood of accepting the particular borrower, and may negotiate small changes in the terms to attract the borrower if they find he/she desirable.

A hard money lender specializes in short-term loans which are backed primarily with real estate as collateral. A hard money lender in general offers worse rates than a traditional banking organization, in exchange for more flexible terms and a broader...
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