The Federal National Mortgage Association or FNMA is often referred to as Fannie Mae. It is a wholly-owned government-controlled corporation of the United States which was created in 1938.
This institution provides liquidity to the home mortgage market in the United States by buying mortgages from lenders. It then packages these loans into a mortgage-backed security (MBS) and is sold to investors on the secondary market.
FNMA or Fannie Mae almost collapsed due to the subprime mortgage crisis in 2008. As a result, there were calls for stricter regulation of such enterprises as FNMA and Freddie Mac (the Federal Home Loan Mortgage Corporation).
Fortunately, FNMA has recovered well since 2008 and is now back to its job of providing liquidity to the home mortgage market in the United States.
In this article, we will be looking at FNMA and its role in the home mortgage market. We will also look at why it almost collapsed in 2008, what went wrong with FNMA, is Fannie Mae safe for investment? And whether Fannie Mae is profitable or not!
What is FNMA?
FNMA is a secondary mortgage market participant and a government-controlled corporation. It purchases loans in the secondary market for housing to create MBS, which it then sells to investors on the market.
The primary role of FNMA is to stabilize the mortgage market. It does not create or give out loans. It simply provides liquidity to the market.
FNMA began as a government organization called The Federal Loan Agency in 1938 during the Great Depression. In 1968, it became The National Mortgage Association and went through several name changes before becoming FNMA in 1998.
It is sometimes referred to as Fannie Mae, and its full name is The Federal National Mortgage Association.
How does FNMA work?
Understanding how FNMA works is pretty straightforward! As a secondary market participant, FNMA purchases loans from the initial lender in the primary market.
These loans are then packaged into a mortgage-backed security (MBS), then sold to investors on the secondary market through FNMA Networks and Enterprises.
FNMA is a huge company with assets in hundreds of billions. Purchasing loans from the primary market is not its only role, however! FNMA also makes appraisal management, mortgage servicing, escrow account management, default servicing, and technology provision for lenders, among other things.
But they have programs to help with home ownership. FNMA helps homebuyers, homeowners, or even renters. Through different programs, they aim to help people find the mortgages that are best for them.
5 FNMA Programs you should know about
1. HomePath:
FNMA’s homeopath is a program designed to buy or sell real estate-owned (REO) properties. It is a program in which FNMA buys back homes from homeowners who have been foreclosed by lenders and then puts them up for sale to other homebuyers.
So as a home buyer, you can get a good deal on a foreclosure. But you have to know what you are getting into because they come as-is and may require some renovation.
2. HomeReady:
The HomeReady program is intended to help first-time homebuyers or repeat home buyers buy a house or refinance at a lower cost. It is designed to help those with lower incomes get less expensive homes.
As a homebuyer, you need to know that this program is subject to Fannie Mae’s income limits. With HomeReady, you can buy a house with only 3% down or existing equity!
3. Mortgage Help Network:
In case homeowners are struggling with their monthly mortgage payments, Fannie Mae helps their loan holders work with HUD-approved housing counseling agencies to determine what they can do.
HUD-approved housing counselors are only available to homeowners with Fannie Mae loans. They help homeowners by going over their situation, looking at options, and liaising between homeowners and their servicer.
4. Fannie Mae’s RefiNow Program:
It was launched recently (June 5, 2021) to help low-income mortgage holders refinance their mortgages through a program called RefiNow. It helps to reduce their monthly mortgage payments and interest rates.
To qualify for this program, homeowners must earn no more than 80% of their area’s median income. Their FICO score should be more than 620.
5. Tenant-In-Place Rental Program:
This program is designed for people who are renting a foreclosed property owned by Fannie Mae.
Suppose you’re living in a rental unit that is being foreclosed. In that case, this program offers monthly rentals at market price rent with month-to-month leases.
This one-time deal comes only once the foreclosure procedure has begun, allowing tenants to continue renting at existing market rates.
What are the qualifying requirements for FNMA?
The qualifying requirements might vary depending on what you’re applying for.
Suppose you want to find out about the requirements for a HomePath property. In that case, you should contact your local real estate agent or HomePath directly to get the answer.
But if you have questions regarding FNMA loans, here are four main things that are usually taken into account:
1. Credit score:
Your credit score is a significant factor. Your credit history will be used to determine whether you can apply or not. The higher the scores, the better chances of approval, but there are always exceptions.
The minimum requirement of most FNMA loans is 620. In case you qualify with a lower credit score, you have to pay higher interest rates.
2. Employment stability
Employment stability is another factor that determines whether or not you qualify for an FNMA loan. Lenders need to know that you can repay your loan promptly. So they want to see that you are consistent with your income.
Lenders need to ensure that you are not likely to lose your job soon. Otherwise, they might have to foreclose on the property if you can’t pay for it anymore.
3. Debt to income ratio:
Your debt-to-income ratio is taken into account when you apply for an FNMA loan. Lenders want to know that your disposable income can cover your housing costs such as taxes and insurance before giving out the loan. Your debt-to-income ratio has to be lower than 50% to qualify for the loan.
4. Down payment:
You can get an FNMA loan with as little as 3% down. But if you want to avoid Private Mortgage Insurance (PMI), it’s recommended that you put at least 5%. Otherwise, lenders might require a PMI, which will cost a lot more in the long run.
How to apply for an FNMA-backed Loan?
Here are the steps you should take when applying for a loan:
1. Determine your eligibility
You can check the guidelines to know if you’re eligible or not before going through the application process. You can see what other options you have so you don’t waste time and money needlessly if it turns out that you cannot get the loan.
2. Find a lender
Lenders in the Fannie Mae network can offer you an FNMA loan, so it’s best to look for them first. You can use a trusted source or real estate agent to find out who they are and what loans they offer.
If you have any contacts that can help you with this, it’s best to ask them for referrals.
3. Apply for an FNMA loan
After finding a lender, you should apply for the loan by telling them your monthly income and housing expenses. They will let you know if you qualify or not, so there is no need to worry about it beforehand.
You can ask your lender for more information and find out how they can help you manage the loan.
4. Prepare to move
Once you qualify for an FNMA loan, you must be physically able to relocate to a new home since most of these deals require borrowers to be the owner occupant. You just moved into this house, so it’s best to find out as soon as possible.
How safe is FNMA?
An FNMA loan is probably the safest out of all mortgages. Lenders don’t want to lose money, so they charge you lower interest rates than any other mortgage.
Since Fannie Mae backs most of the loans, you’re going to get a higher value for your house if you decide to sell it. Your home is considered collateral against the loan. So if something goes wrong, lenders can repurchase it at the same price they gave out the loan plus any other fees.
Bottom-Line:
FNMA loans are one of the most popular types of mortgages in the market. They consider your stability as a homeowner so that you can get approved no matter your income.
Knowing the guidelines before applying for an FNMA loan is recommended, so you don’t waste time and money needlessly.
You can find out if you’re eligible or not by looking for an FNMA-approved lender first. They can refer you to a trusted source and other real estate agents to help you find the best loan out there.
Make sure that you’re physically able to move into a new home before getting approved, or else you might have to pay more in the long run!
