Federal National Mortgage Association (FNMA). A publicly-traded company chartered by the U.S. Congress to guarantee mortgages granted to low- or middle-income households. In order to do this, it buys mortgages and repackages them, selling them as mortgage-backed securities. It also maintains its own portfolio of mortgage-backed securities. With the collapse of the housing bubble, Fannie Mae was placed in federal receivership in 2008 as a result of overexposure to this market. See als Freddie Mac, Community Reinvestment Act, Credit crunch.
In corporate bankruptcy, a situation in which a court or regulator appoints a custodian to administer all assets and debts. This custodian is known as a receiver; his/her duty is to pay off as many debts as possible as cheaply as possible. One obvious way to do this is to liquidate the company, but this is not always done. The receiver may restructure the company to put it on a path toward solvency.
In the United States, different financial regulators have the authority to decide whether receiver ships are necessary. The Office of Thrift Supervision may do this for savings and loans; the Office of the Comptroller of the Currency for national banks. In any federally-chartered savings and loan or bank, the FDIC must be appointed receiver.
1. A private, shareholder-owned company created by Congress in 1938 to bolster the housing industry during the depression. Fannie Mae facilitates homeownership by adding liquidity to the mortgage market when it purchases loans from lenders who use the funds received to make additional loans. Fannie Mae finances mortgage purchases by issuing its own bonds or by selling mortgages it already owns to financial institutions. The firm's common stock trades as FNM on the New York Stock Exchange. Formerly called Federal National Mortgage Association. See also quasi-public corporation.
2. A security issued by this company that is backed by insured and conventional mortgages. Monthly returns to holders of Fannie Maes consist of interest and principal payments made by homeowners on their mortgages.
Fannie Mae. Fannie Mae has a dual role in the US mortgage market.
Specifically, the corporation buys mortgages that meet its standards from mortgage lenders around the country. It then packages those loans as debt securities, which it offers for sale, providing the investment marketplace with interest-paying bonds.
The money Fannie Mae raises by selling these bonds pays for purchasing more mortgages. Lenders use the money they realize from selling mortgages to Fannie Mae to make additional loans, making it possible for more potential homeowners to borrow at affordable rates.
Because lenders want to ensure their mortgage loans are eligible for purchase, most adopt Fannie Mae guidelines in evaluating mortgage applicants.
Fannie Mae is described as a quasi-government agency because of its special relationship with the federal government. It's also a shareholder-owned corporation whose shares trade on the New York Stock Exchange (NYSE).
Government Sponsored Enterprise
A privately held or publicly traded company created by the U.S. Government for some purpose thought to benefit the American economy. For example, Freddie Mac was originally a GSE created to encourage homeownership among middle class and working class Americans. Because it is "sponsored" but not owned by the government, GSE stocks carry higher risk than, say, Treasury securities, which are backed by the full faith and credit of the United States. However, GSEs have an implicit guarantee that the government will not allow them to fail. Indeed, when Fannie Mae and Freddie Mac collapsed in 2008 they almost instantly received federal assistance.
Government-Sponsored Enterprise (GSE)
One of a group of financial services organizations created by the government. Some are owned by the federal government, some are owned by private individuals,and some are owned by corporations that use their services.All of them enjoy exceptionally low loan rates and exceptionally high sales prices for their bonds and other debt instruments because of the implicit backing of the U.S.government.They include
• Federal Home Loan Banks. Owned by over 8,000 community financial institutions that use the services of the FHLBs. • Federal Home Loan Mortgage Corporation (Freddie Mac). A stockholder-owned, publicly traded corporation listed on the New York Stock Exchange as FRE. • Federal National Mortgage Association (Fannie Mae). A stockholder-owned, publicly traded corporation listed on the New York Stock Exchange as FNM. • Government National Mortgage Association (Ginnie Mae). A wholly owned (by the government) corporation within the Department of Housing and Urban Development. • Farm Credit Bank. Federally chartered and borrower-owned financial institutions. • Federal Agricultural Mortgage Association (Farmer Mac). A stockholder-owned, publicly traded corporation listed on the New York Stock Exchange as AGM. • Student Loan Marketing Corporation (Sallie Mae). A stockholder-owned, publicly traded corporation listed on the New York Stock Exchange as SLM.
Mortgage-backed securities (MBSs) Securities backed by a pool of mortgage loans.
A derivative whose value is derived from unpaid mortgages. This entitles the owner to a claim on the principal and interest payments on the particular mortgages backing the security. MBSs pay an interest rate that is usually related to the interest rates the homeowners are paying on their mortgages. The equivalent of the coupon on a mortgage-backed security is a percentage of the interest and principal paid on the mortgages backing the security. An obvious risk to an MBS is the possibility that interest rates may decline, causing homeowners to refinance their mortgages. This provides capital to MBS holders, but it comes at a time when purchasing more MBSs would yield less due to the decline in interest rates. More complicated versions of MBSs include the collateralized mortgage obligation and the mortgage derivative. These attempt to reduce the risk associated with declines in interest rates.
Another risk associated with mortgage-backed securities is the possibility that a substantial number of mortgages will default. A main proximate cause of the credit crunch, which began in 2006-2007, was the fact that many mortgage-backed securities backed by subprime mortgages began to default. See als Credit risk, Liquidity risk, Credit crunch.
Mortgage-Backed Securities (MBSs)
What Does Mortgage-Backed Securities (MBSs) Mean?
Refers to a type of asset-backed security secured by a mortgage or a collection of mortgages and grouped in one of the top two ratings as determined by a credit rating agency such as Moody's; usually make periodic payments that are similar to coupon payments. Furthermore, the mortgages must have originated from a regulated and authorized financial institution. Also known as a mortgage-related security or a mortgage pass-through. MBSs shift the loan risk from the originator to the agencies that bundle the mortgages into securities rather than to the investors who ultimately purchase the MBSs.
When one invests in a mortgage-backed security, one essentially is lending money to a home buyer or business. An MBS is a way for a smaller regional bank to lend mortgages to its customers without having to worry about whether the customers have the assets to cover the loans. Instead, the bank acts as a middleman between the home buyer and the investment markets. This type of security also is used commonly to redirect the interest and principal payments from the pool of mortgages to shareholders. These payments can be broken down further into different classes of securities, depending on the riskiness of different mortgages as they are classified under the MBS.
A corporation that is operated privately, but is supported by the government in its operations and that often traded publicly.
A publicly traded company partially owned or at least guaranteed by a government for some purpose thought to benefit the community. For example, a government may create a quasi-public corporation that sells mortgages to encourage homeownership. Quasi-public corporations are considered low-risk investments because of the express or implied guarantee that the government would not allow the company to go bankrupt. However, quasi-public corporations are required to place their mission above providing a profit to stockholders. See als GSE.
A privately operated firm having legislatively mandated public responsibilities. A quasi-public corporation may have publicly traded shares of stock. Fannie Mae is a quasi-public corporation established to make a secondary market in mortgages. The firm is privately owned but publicly traded and its shares of common stock are listed on the New York Stock Exchange.
Quasi-public corporation. In the United States, quasi-public corporations have links to the federal government although they are technically in the private sector.
This means that their managers and executives work for the corporation, not the government. And, in many cases, you can buy stock in a quasi-public corporation, expecting to share in its profits.
Many quasi-public corporations were originally federal agencies that have been privatized. Among the best known are Fannie Mae, Freddie Mac, and Sallie Mae. They scuritize consumer loans and sell them in the secondary market.
The US Postal Service is also a quasi-public corporation, as is the Tennessee Valley Authority (TVA).