Fannie Mae

Fannie Mae was established during the New Deal era as a government agency to expand the secondary mortgage market and ensure a steady flow of funds into home lending. In 1968, it was converted from a federal agency into a shareholder-owned corporation, with shares trading publicly on the New York Stock Exchange, while retaining its government-sponsored enterprise charter and mission.

Fannie Mae's core function is credit intermediation between primary mortgage lenders and capital markets. Banks and mortgage companies originate loans under Fannie Mae's guidelines — including the conforming loan limit, income documentation standards, and credit score requirements — and sell those loans to Fannie Mae. Fannie Mae then pools the loans into MBS, guaranteeing that investors will receive scheduled principal and interest payments even if individual borrowers default. This guarantee substitutes Fannie Mae's credit for the credit of the underlying borrowers, creating a standardized instrument that is highly attractive to domestic and international institutional investors.

The conforming loan limit — the maximum loan size eligible for Fannie Mae and Freddie Mac purchase — is updated annually by the FHFA based on changes in average home prices nationally. For 2024, the baseline conforming limit was $766,550 for a single-family home in most U.S. markets, with higher limits in designated high-cost areas. Loans exceeding these limits are non-conforming jumbo loans that must be funded through the private label or portfolio market rather than through the GSE system.

The financial crisis of 2008 exposed the systemic risks embedded in Fannie Mae's model. Rapid growth in non-traditional mortgage products during the mid-2000s housing boom, combined with inadequate capital buffers, drove Fannie Mae to the brink of insolvency by September 2008. The FHFA placed Fannie Mae and Freddie Mac into conservatorship, with the U.S. Treasury providing hundreds of billions of dollars in capital support through preferred stock purchase agreements. This intervention prevented a collapse that would have devastated the U.S. mortgage market and disrupted the holdings of central banks and investors worldwide.

Under conservatorship, Fannie Mae has operated profitably, returning substantial funds to the U.S. Treasury in the form of dividend payments. The broader question of GSE reform — whether and how to restructure or release Fannie Mae and Freddie Mac from conservatorship — has been debated in Congress and across multiple administrations, reflecting the difficulty of redesigning the architecture of the world's largest mortgage market without disrupting its function.