You could argue that if Fannie Mae had been around, George Bailey's Building and Loan would not have been in trouble, despite his absent-minded Uncle Billy, and he would not have needed an angel and the whole town to bail him out.
It would still be a wonderful life, but perhaps not as dramatic a life.
Fannie Mae's real name is the Federal National Mortgage Association and it is a federally charted corporation, owned by shareholders, that has one main mission: To make sure there is enough money around that any American who has the resources to buy a home can get a mortgage. But not just any American can pick up the phone and call Fannie Mae.
When you get a mortgage from your local lender, the lender is the one who will be in touch with Fannie Mae. Your local lender wants to make loans, because it makes money (interest) on loans. But each local lender can only make just so many loans with the money it has available. That's where Fannie Mae comes in.
Thanks to Fannie Mae, your lender doesn't have to wait 30 years until you pay off your mortgage so that it can make a new loan to another family. Instead, your lender can sell your loan to Fannie Mae, make some money on the loan, and then loan someone else in your community money for a home.
Fannie Mae makes money because it can borrow at the best possible rate, a better rate than you get on your mortgage. Fannie Mae buys your mortgage for a lower rate than the lender is charging you, then holds your mortgage (or maybe even sells it again) until you pay it off.
In the meantime, you keep right on paying your local lender, just as you have always done.
Of course, Fannie Mae is the mega player in the mortgage paper world. It makes still more money by packaging up your loan with others and selling it in a bundle to investors, pension funds and other groups. Fannie Mae guarantees that the investors get their money, even if you default on your mortgage.
This is where Fannie's government relationship comes into play. If a vast number of people default at one time and overwhelm Fannie Mae, then she has a great ace-in-the-hole: Your tax dollars. The U.S. government has never explicitly guaranteed that if Fannie Mae failed, tax dollars would be used to prop up the corporation. But most people think that is what would happen.
Blessings to your Real Estate Investing Business,
Milton B. Yates
www.miltonyates.com
