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Fannie Mae: What Is The FNMA And How Do Fannie Mae Loans Work?

Kevin Graham5-minute read

September 17, 2020

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Whether you’re in the market to buy or refinance a house or just follow the news, you’ve probably heard of Fannie Mae, otherwise known as the Federal National Mortgage Association or FNMA. You may even be aware that Fannie Mae plays a significant role in the housing market, even if you’re not fully familiar with how it works.

When choosing a mortgage, Fannie Mae is just one provider of mortgage options that may be available to you. Still, understanding how investors like Fannie Mae work will give you a better understanding of the housing market and the overall process associated with getting a mortgage.

What Is Fannie Mae?

Fannie Mae is a corporation that provides the funding for mortgages by buying them from banks or other non-bank lenders like Quicken Loans®. They then sell those mortgages as part of mortgage-backed securities to investors, providing the necessary liquidity in the mortgage markets to make more loans and keep housing affordable. It was founded in 1938 by Congress as a government-sponsored enterprise in order to provide funding to make housing more affordable. Prior to that, getting a mortgage required a down payment that could be 50% or more. There were also very strict terms which often enabled the lender to take your home back if you had even one missed payment.

Since its founding, Fannie Mae has seen growth as well as its fair share of bumps. In 1968, Fannie Mae went private after a round of investment by shareholders that was chartered by Congress. Its funding came completely from the stock and bond markets. However, in the late 2000s, Fannie Mae was hit hard by the economic downturn and subsequent troubles in the real estate market. It’s been under the government conservatorship of the Federal Housing Finance Agency since late 2008. It was delisted from the New York and Chicago stock exchanges in mid-2010. Under the agreement, the FHFA financially supports Fannie Mae in certain circumstances in exchange for preferred stock.

How Does Fannie Mae Sell Stock?

Fannie Mae stock is still traded on the market, but it’s not on a public stock exchange. Prior to 2011, when the price was deemed too low to be eligible for trading according to the rules of the exchange, Fannie Mae was traded on the NYSE. The NYSE is a public exchange where stock prices are generally transparently updated and visible to all participants.

Since it’s been delisted, Fannie Mae has been traded under the symbol FNMA on over-the-counter bulletin boards. In an over-the-counter system, the trades are made between individuals who negotiate directly the prices by which they buy and sell.

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How Does Fannie Mae Guarantee Loans?

Because Fannie Mae doesn’t originate loans, you can’t get your mortgage directly from Fannie. Banks and non-bank lenders like Quicken Loans® are responsible for collecting a client’s application, underwriting the loan – by doing things like verifying income, assets and property value – and getting them to the closing table.

Once the loan closes, Fannie Mae buys loans that meet its requirements from lenders. These conventional mortgages are guaranteed by Fannie Mae, meaning they’ll make investors whole if the borrower goes into default. They package these loans into MBS before selling them on the open bond market to investors. An MBS might consist of 1,000 loans or more that have similar characteristics. Fannie Mae has certain rules, among them that they won’t buy nonconforming loans. Many things can make a loan nonconforming, but one of the most common characteristics is jumbo loan status, currently any loan above $510,400.

What Are The Requirements For A FNMA Loan?

You should always feel free to speak with a Home Loan Expert about your situation, but the following is a short list of general guidelines for Fannie Mae loan approval:

  • Credit Score: With loans from either Fannie Mae or its competitor Freddie Mac, you’ll need a median FICO® Score of at least 620 between the three major credit bureaus – Experian™, Equifax® and TransUnion®.
  • Debt-To-Income Ratio: DTI, which compares your monthly debt payments to your before-tax monthly income, should be no higher than 50% in most cases to qualify for a Fannie Mae loan.
  • Down Payment: For second homes and investment properties, the down payment requirements are higher, but for a one-unit primary residence, the down payment needed could be anywhere from 3% – 5%.
  • Reserves: Reserves, the number of mortgage payments lenders want to see in your account in case you experience a loss of income or other financial hardship, could be up to 6 months with a Fannie Mae loan, although 2 months is a good starting point generally.

How Does Fannie Mae Affect Homebuyers, Homeowners And Renters?

Fannie Mae is a mortgage investor, but they have programs that are intended to help everyone from home buyers to current homeowners and even renters.

  • HomeReadyAvailable for both first-time and repeat home buyers, the HomeReady program allows you to buy a home or refinance to lower your rate and/or change your term with as little as 3% down or in existing equity. Because it’s intended to help clients with low-to-moderate incomes, those on the loan can’t make more than 80% of the area median income between them. Fannie Mae does have an option to have 3% down without income limits, but at least one client must be a first-time home buyer.
  • HomePath: HomePath is the site where Fannie Mae houses foreclosed properties that it’s taken possession of to resell, also known as real estate owned (or REO) properties. You have to know what you’re getting into when buying a foreclosed property because they’re typically sold as-is and they often require some work. However, you may be able to get a good deal. Additionally, first-time home buyers who choose a Fannie Mae-owned property can spend as little as 3% down and get up to 3% back in closing-cost assistance in the form of seller concessions from Fannie Mae through the company’s HomePath Ready Buyer™ program. You’ll have to take a homeownership education course. The $75 cost can be reimbursed as part of your closing assistance.
  • Mortgage Help NetworkIf for any reason they’re struggling with their monthly mortgage payment, homeowners with Fannie Mae-owned loans can work with a Department of Housing and Urban Development housing counselor in order to go over their situation, look at options and serve as a liaison between homeowners and their mortgage servicer. If you’re a Quicken Loans client who’s having or may soon be having payment trouble, please feel free to reach out to us at (800) 508-0944. We’re here to help!
  • Tenant-In-Place Rental ProgramIf you’re a tenant in a Fannie Mae-owned property that’s currently being foreclosed upon, you may be able to continue renting at current market rates. In certain cases, you may be able to keep your current lease. In others, you may be given the option to sign a new lease agreement. Fannie Mae offers include month-to-month leases as well as those that are good for a specific term.

We hope this gives you a better understanding of the options Fannie Mae offers whether you’re looking to buy a home for the first time or the 10th and even if you’re looking to refinance.

To look into your options for a Fannie Mae or any other mortgage, you can apply today with Rocket Mortgage® by Quicken Loans.

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Kevin Graham

Kevin Graham is a Senior Blog Writer for Rocket Companies. He specializes in economics, mortgage qualification and personal finance topics. As someone with cerebral palsy spastic quadriplegia that requires the use of a wheelchair, he also takes on articles around modifying your home for physical challenges and smart home tech. Kevin has a BA in Journalism from Oakland University. Prior to joining Rocket Companies, he freelanced for various newspapers in the Metro Detroit area.