Closing the gap or closing the door?

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• introduction
• Video summary
• Summary
• Why Fannie is important
• TX home loan problems
• FannieMae's responsibility
• Findings
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• GIS and home loans

This report is the work of the Texas Low Income Housing Information Service

Why Fannie Mae is important

Fannie May plays a central role in the mortgage finance industry — it is a Fortune 500 company with the second largest assets of any US company. Without it, the American homeownership system would be dramatically different.

Fannie Mae operates under a congressional charter that directs the company to channel its efforts into increasing the availability and affordability of homeownership for low-, moderate-, and middle-income families and promoting access to mortgages in “underserved” areas.

Congress created Fannie Mae in 1938 in order to bolster the devastated US housing industry in the aftermath of the Great Depression. During this time, hundreds of thousands of destitute families were living in slums called “Hoovervilles” in U.S. cities from coast to coast and Fannie Mae held out the promise of helping fill the critical need for affordable housing in America.

From its inception Fannie Mae has had one overriding purpose: to purchase mortgages and therefore serve as a secondary market, enabling lenders to make more loans locally.

Today most mortgages are not held by a lender for the full 30 year term of the loan. Instead, the loans are sold to Fannie Mae or its sister organization Freddie Mac. These GSEs aggregate the loans into loan pools that are sold to investors.

Due to their status as secondary markets, the GSEs are in a strong position to dictate the criteria families must meet before they qualify for a home loan. As a result, the business practices of the GSEs have enormous influence on the real estate market.

Together Fannie Mae and Freddie Mac are by far the largest sources of housing finance in the nation. In 2000, Fannie Mae itself purchased 31.1 percent of all the conventional home mortgage loans in the Dallas/Fort Worth area and 35.7 percent of the conventional home mortgage loans in all US cities.

By purchasing loans made to minority or low- and moderate-income households or in predominantly low-income or minority neighborhoods, Fannie Mae can be the critical force that enables lenders to serve these households or communities. Conversely, if Fannie Mae does not buy loans made to these households or communities, lenders will be very limited in their ability to make loans to them.