What is Fannie Mae?

Federal National Mortgage Association, commonly known as Fannie Mae, trades under the symbol of Ticker Stock Exchange FNMA. It was founded in 1938 by the US Congress as a government -sponsored enterprise or GSE. Although society does not have a express guarantee of government support, it is considered to be too important to fail.

Fannie Mae is responsible for maintaining the secondary market in home mortgages. Ensuring that mortgages meet specific criteria can easily trade between credit institutions and investment banks, increases the ability of creditors to provide long -term mortgages. The direct benefit for consumers is that mortgage interest rates are lower than they would otherwise be. For example, the so -called Jumbo mortgages, which are larger than the Fannie Mae, generally carry an interest rate of 0.5% higher.

The business of this company is to purchase and associate . The conformation of loans must be measured by the Fannie Mae, including the limit of the loan size and the debtor's qualifications. When purchasingFor these loans, the company takes over the risk of debtors' failure and changes in interest rates.

To ensure variable interest rates exposure, Fannia Mae is heavily traded on the market for financial derivatives that know as interest swaps . Interest swaps allow companies to sell the future number of unknown interest payments in exchange for a well -known series of payments in the near future. Fannie Mae also buys and sells strips , the mortgages in which the director is traded independently, ie "" Oimposed "from the current of interest payments expected to generate. The large global market has developed on these mortgage securities, largely because of the existence of Fannia Mae.

Fannie Mae is not obliged to give regular financial reports with the Securities and Stock Exchange Commission (SEC), although in 2002 it began under pressure from SEC and congress investigators. In 2004, SEC demanded that the company pShe has worked for several years of earnings, claiming that the previously reported profits were actually losses worth several billion dollars. Later this year, his long -time CEO and CFOS Franklin Raines and Timothy Howard were released under accusations of accounting fraud. While the current leadership of Fannie Mae claims that accounting discrepancies are caused by different interpretations to explain interest swaps, investigators claim that profits have been incorrectly reported to allow high management bonuses. Significant criticism of the company is Alan Greenspan, former chairman of the Federal Reserve Bank.

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