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Fannie Mae is a leading mortgage company and one of the most financially successful businesses within its industry. Given the salient features of the organization that has culminated into its current standing, this report offers a brief but concise overview of the corporation.
The organization began as a part of Roosevelt’s New Deal, a program initiated by the onslaught of worldwide economic depression in the 1930s and the complete collapse of the housing market. Chartered by Congress as the Federal National Mortgage Association in 1938, the organization’s principal mission was to encourage home ownership by providing local banks with money and ensuring the residential mortgage market is well funded by the creation of a secondary mortgage market (Cottle 1998, Allie Mae 2004).
In 1968 Lyndon B. Johnson transformed Fannie Mae into a “government sponsored enterprise” (GSE) due to the company’s complete monopolization of the second mortgage market (Cottle 1998). Cottle explains that, “as a GSE, the company is subject to congressional oversight and certain limitations on its activities, but it nonetheless is a privately operated, publicly traded, for-profit corporation charged with making money for its shareholders” (p. 18). The U.S. president gets to appoint several board members, and the U.S. Treasury Department approves Fannie Mae's debt issuance. And it has approved and approved and approved. Fannie Mae and Freddie Mac have virtually unlimited access to capital, at funding costs that are below the rates otherwise available on the market. In layman’s terms, this means that Fannie does not have to register securities with the government, they do not have to pay state or local income taxes, and because the government sponsors the corporation, they are seen as a governmental entity when they really are not which has accounted for the large financial growth within the organization’s history along with a nearly limitless channel to capital (Mckinley 1998).
As was mentioned previously, the organization’s principal aim is to ensure the residential mortgage market is well funded. Indeed, within the past 31 years, Fannie Mae has provided over $2.8 trillion of mortgage financing (PR News 2000) and has helped over 63 million families obtain their dream of owning a home (Fannie Mae 2006). You cannot simply call up Fannie Mae and ask its loan officers about the going rate on a seven-year ARM; it doesn't loan money to retail home buyers. Instead, it provides liquidity for lenders by providing liquidity in the secondary mortgage market.
Fannie does this by purchasing mortgages from primary lenders, which can be banks or thrifts, enabling these lenders to finance more mortgages and then bundles the debts and resells them. A lender is any institution or individual who loans a borrower money. There are a number of types of lending organizations, including educational lenders, commercial lenders, hard money lenders, sub-prime lenders, and community credit unions.
Often a loan is brokered, meaning that the borrower is evaluated by a third-party who then proposes the loan request to a number of different lenders. These lenders are chosen based on their likelihood of accepting the particular borrower, and may negotiate small changes in the terms to attract the borrower if they find he/she desirable.
A hard money lender specializes in short-term loans which are backed primarily with real estate as collateral. A hard money lender in general offers worse rates than a traditional banking organization, in exchange for more flexible terms and a broader range of deals they are willing to back. In some states within the US, hard money lenders are forced to operate differently than they do in the country as a whole, because of conflicts between their standard practices and those states' usury laws.
A community credit union is a financial cooperative operating to lend money to its members. The constituents of a mutual organization put money into a collective, where it may then be disbursed to members in need of loans, at agreeable rates and with good terms. By eliminating the need to turn a profit, mutual organizations are able to give lower rates on loans than traditional banking organizations.
The sub-prime lenders are considered, in some instances, as a last resort since they tend to give loans to people with a very low credit scores or an otherwise extremely high risk of default. This type of lender offers loans at exorbitant interest rates as a way of covering losses from the high default rate they experience with their borrowers.
Fannie Mae does not hold onto all of the purchased mortgages. It will take the individual loans and package them up with hundreds of others and market them as mortgage-backed securities (MBS) that it then sells to investors (for example, insurance companies, pension funds). Fannie Mae provides a guarantee to these investors that they will receive timely principal and interest payments, no matter what happens with the underlying mortgages. If there are large numbers of defaults, Fannie Mae will have to make the investors whole, utilizing tax dollars. Investors can also buy shares in Fannie Mae (Cottle 1998) while increasing the flow of capital within the market.
The organization’s philosophy is reflected in its mission statement and the various programs initiated by its management. According to the Fannie Mae, “Our mission is to help put people into homes of their own wherever they live throughout the country. We are all here as a team working to benefit people regardless of race, gender, creed, age, sexual orientation — none of that matters when you’re purchasing a home. And it doesn’t matter when you’re working here at Fannie Mae” (Annual Report 2003, p. 27). Internally, the organization has implemented a realm of diversity programs, which accounts for the increased percentages in women and other individuals of color (see figure 1), along with a Work/Life program, which assists families with childcare and other benefits. The organization was recently ranked as one of the best companies to work for by Computerworld (PR News 2001).
Yet, regardless of its mission statement and values that are communicated within the organization, the cloud of financial scandal and its doubtable policies have culminated into a negative public image. Critics of the organization are demanding a complete overhaul with regard to the policies employed and the methods of the business. Louisiana Republican Richard Barker claims that the organization is “not performing in a manner that satisfies their charter guidelines” and, furthermore, there have been claims that the company is more concerned with boosting its stock value rather than increasing home ownership, its central purpose (Baker 2001, p. 2). As a result, the organization has been branded by its critics as the “poster children for corporate welfare” (Baker 2001, p. 4).
Nevertheless, these criticisms have not dissuaded Fannie’s corporate growth (see figure 1) and an up-to-date stock ticker on the company’s web site (http://www.fanniemae.com/ir/faq/021101f.jhtml?p=Investor+Relations&s=Investor+FAQ) indicates that it is currently trading about $54.50 per share. Fannie is extending beyond its original purpose by creating new technology. Fannie introduced its first automated underwriting system in the mid 1990s. This online technology, provided for a modest fee, has quietly split the lending business and shifted power to brokers by allowing them to perform some of the services once provided exclusively by banks. Big banks have spent millions of dollars developing their own high-tech underwriting systems in the 1990s. But the bank software never caught on widely, in part because it varies from institution to institution. Fannie's version has become the standard for the industry, giving the company a valuable position in banks and brokers across the country. Fannie’s new technology can and will continue to empower new, and more efficient competitors. Former Fannie Mae CEO Franklin Raines, once said Fannie aims to increase business with small lenders. One instance was by encouraging unsecured home-improvement loans made available to buyers of siding, roofing or windows at Home Depot Inc. The retailer would take applications from consumers, Chevy Chase Bank of Maryland funded the loans and Fannie would then buy them.
In addition, the company’s numerous job openings demonstrate continued growth. A quick review of the openings on Career Builder’s website illustrate that Fannie is continually expanding and seeking positions for audit managers, underwriting consultants, developers, financial analysts, business analysts, and senior multifamily managers (Career Builder). As for benefits, the company offers vacation and holiday packages up to 15 days for those who have been employed less than three years and 20 days for those who have been employed for over three years. Fannie offers flexible hours under a program known as ‘Flextime’ and another program, ‘Phase Back’, offers new parents the option of a gradual transition back to work (Fannie Mae, Careers). Fannie Mae also sponsors an elder care initiative that focuses on their employees needs to care for aging relatives. Fannie Mae offers career development opportunities that include training and workshops, with a curriculum focused on computer and information systems professionals, job rotations, and corporate and peer mentor programs. The company has also done a lot to extend mortgage opportunities to minorities and women. They have established business relationships with over 300 women and minority mortgage lenders. Fannie Mae has approximately 5,531 employees, of which 2,732 are women. There are about 1,408 women leaders, 415 in top 20% based on pay, and 3 on the Board of Directors (Working Mother). Part of Fannie Mae’s mission statement says, “We know investing in the future of our employees makes good business sense because our employees are our most important asset.” Fannie Mae truly is an organization with a rich corporate culture and sense of obligation to its community.
As an overall assessment, Fannie is and will continue to be the leader in the residential mortgage market. The organization has adopted policies that have furthered its growth both financially and structurally. Though there have been questionable methods employed in the company due to financial scandals, Fannie’s management will undoubtedly work to resolve these problems and implement controls to avoid future scandals to increase the bottom line and continue to provide the American dream for millions of individuals around the United States.
Annual Report. (2003). Fannie Mae. Retrieved March 28, 2007 from http://www.fanniemae.com/ir/pdf/annualreport/2003/2003annualreport.pdf
Allie Mae. (2004). History of Fannie Mae. Retrieved March 28, 2007 from
Baker, C. (2001, December 16). Fannie Mae, Freddie Mac make no place like home a reality. The Washington Times. 1-4
Career Builder. (2006). Fannie Mae jobs. Retrieved March 28, 2007 from
Cottle, M. (1998, June). Nice work if you can get it: How Fannie Mae became Washington's biggest power player. Washington Monthly. 30(6), 18-20
Fannie Mae. (2006). About us. Retrieved March 28, 2007 from
Fannie Mae. (2006). Careers. Retrieved March 28, 2007 from http://www.fanniemae.com/careers/working/familylifestyle.jhtml?p=Careers&s=Working+at+Fannie+Mae&t=Family+&+Lifestyle
Mckinley, V. (1998, July). Fannie Mae and Freddie Mac: The Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation make mortgage markets inefficient, choke off competition, and help only the affluent. USA Today. 127(2638), 16-19
PR News. (2001, May 16). Best places to work in IT. Fannie Mae. Retrieved March 28, 2007 from http://www.fanniemae.com/newsreleases/2002/1918.jhtml;jsessionid=DXK2LOBEZWQMFJ2FECISFGI?p=Media&s=News+Releases
PR News. (2000, April 11). Fannie Mae chairman announces new loan guidelines to combat predatory lending practices. Fannie Mae. Retrieved March 28, 2007 from http://www.fanniemae.com/newsreleases/2000/0710.jhtml;jsessionid=Q4PCD4JQCGKBHJ2FECISFGI
Working Mother. (2004). Fannie Mae. Retrieved March 28, 2007 from