The Federal National Mortgage Association is a federally chartered corporation that purchases mortgages. Also referred to as "Fannie Mae", FNMA is a government sponsored agency that works with lenders to ensure that mortgage funds are available to home buyers. Fannie Mae was created by Congress to "provide funding to mortgage lenders by purchasing their mortgages and then holding them or selling them to investors in the form of securities that they guarantee." This type of company is also known as a Government Sponsored Enterprise, or GSE.
FNMA purchases conventional whole loans and participation interest in 5 percent increments between 50% and 95%. Eligible properties include owner-occupied principal residences, second homes and investment properties. Earnings are produced from two sources: 1)income and 2) the spread between its borrowing costs and the yield on its mortgage mortgage investment.
As a secondary market operation, FNMA must sell some of its mortgages notes periodically when conditions permit. Large insurance companies and savings associations and prime customers deal in multimillion dollar blocks of loans. To improve and broaden its sales, FNMA established the auction technique in 1968. This has provided more accurate indications of the mortgage market.
