The Purpose and Function of Fannie Mae

"Fannie Mae" is the nickname for the Federal National Mortgage Association.

Although it has the "Federal" name in its title, it's actually a separate, chartered corporation that operates in the secondary mortgage market.

In this article, I'll give you the background and history of Fannie Mae, describe typical properties, and show you how to buy those properties for investment purposes.

Fannie Mae's Background

Fannie Mae is a federally chartered organization. Its purpose to expand affordable housing and bring global capital to local communities in order to serve the U.S. housing market.

Essentially, Fannie Mae operates in America's secondary mortgage market to ensure that mortgage bankers and other lenders have sufficient funds to lend to home buyers at low rates.

Along with Freddie Mac, it's the main secondary lender in the country. As the Fannie Mae web page states, "Our job is to help those who house America."

The History of Fannie Mae

To give you a historical perspective. Fannie Mae was created by President Franklin D. Roosevelt and Congress in 1938. At that time, there wasn't a consistent supply of mortgage funds. As a result of the Depression, millions of families risked losing their homes or couldn't become home owners.

So, the federal government established Fannie Mae to address this need. Its aim was to "expand the flow of mortgage funds in all communities, at all times, under all economic conditions, and to help lower the costs to buy a home."

In 1968, Fannie Mae was re-chartered by Congress as a shareholder-owned company. It's funded solely with private capital raised from investors on Wall Street and around the world.

Types of Fannie Mae Properties

These include all forms of single-family homes such as detached homes, condos, and town houses. The inventory often includes homes in modest to more expensive neighborhoods.

All Fannie Mae homes are sold in an "as-is" condition. These conditions range from good to poor and include "repo's" which may or may not be in poor condition. Note that Fannie Mae sometimes fixes these properties up in order to get a higher price; at other times, it simply leaves them in the same condition.

In order to obtain one of these properties, Fannie Mae secifies that you go through a local realtor.

Real Estate Agents are required to list these properties on the local Multiple Listing Service. Any local agent can show you a property and make the offer for you to Fannie Mae. You can find further listings of Fannie Mae Properties is available online at http://www.mortgagecontent.net

Making Offers to Fannie Mae

The process is the same as with conventional deals. Fannie Mae can accept or reject your offer or make a counter-offer. Typically, there are several rounds of offers and counter-offers. A benefit of negotiating with Fannie Mae is that, unlike HUD or VA negotiations, you're able to add contingencies and other conditions to your offer.

Here are two examples of contingencies:

Example 1: You can ask for a professional home inspection after the offer is accepted.

Example 2: You can negotiate terms, down payment and financing.

Note: Fannie Mae will not accept a contingency that requires the prior sale of a seller's current property.Source: http://www.fanniemae.com

In terms of financing for these properties, Fannie Mae offers its own REO financing, but the terms are usually no better than conventional sources. This means that buyers may be able to get better terms if they come into a deal with outside financing.

Opportunities for Investors

Fannie Mae properties may present good opportunities for you as an investor, particularly in the area of foreclosures. To operate effectively in this market, it pays to know the ins and outs of the federal bureaucracy as well as the latest regulations.

Key Point: Keep up to date on the Fannie Mae market through your own study of its regulations and with the help of an experienced realtor.

Jack Sternberg