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The Federal National Mortgage Association (FNMA), known as Fannie Mae, is a government-sponsored enterprise set up to make mortgages available to low- and moderate-income borrowers. It was first established in 1938 during the Great Depression as part of President Franklin D. Roosevelt’s New Deal program and became a publicly traded company thirty years later.
Fannie Mae purchases mortgages from lenders in order to provide the lenders with liquidity so they can offer more mortgages. Its brother organization is the Federal Home Loan Mortgage Corporation (FHLMC), better known as Freddie Mac.
This entity guarantees millions of mortgages throughout the country, helping to reduce the down payment and credit requirements for low- and middle-income families. Rather than providing loans, it backs or guarantees them in the secondary mortgage market.
In what is called “securitization,” Fannie Mae, as well as Freddie Mac, bundles the mortgages it owns and sells them to investors.
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