Federal National Mortgage Association (FNMA)

e Federal National Mortgage Association (FNMA) also known as “Fannie Mae” is a semi-private organization whose common stock is negotiated in the New York Stock Exchange.

Fanny Mae was established by Congress in 1938, but was re-chartered by the same Congress to become a private corporation in 1968 with the duty of assisting the development of the secondary market for conventional mortgages.

Some characteristics of Fanny Mae pass-through securities are:

  • FNMA guarantees timely interest and principal payments, a weaker guarantee than the one given for GNMA pass-through securities.
  • FNMA pools tend to be larger than GNMA pools
  • FNMA securities are not as marketable as GNMA securities, and yields on FNMA securities tend to be higher than those offered on GNMA securities.

To offset prepayment and cash flow uncertainties of agency pass-through securities, collateralized mortgage obligations were developed in the private sector.