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What is Fannie Mae?

Over the next few days you will be seeing the name Fannie Mae mentioned in each news bulletin you care to take attention of. But what is Fannie Mae? What does Fannie Mae actually do?

While it is something of a strange name for one of the more powerful associations in the US it is derived from the groups full name which is the Federation National Mortgages Association (FNMA) which has then been labelled Fannie Mae. The group itself is a government sponsored operation which is authorised to operate in the loan and loan guarantee markets - in affect the mortgage sector.

The history of Fannie Mae goes back to 1938 when, under the Roosevelt government, the association was created to provide a high level of liquidity to the US mortgage market. In reality, due to the backing of the authorities, Fannie Mae held a virtual monopoly of the mortgage market for over 30 years. In 1968 the association had grown to an enormous size and in order to take it off the government balance sheet it was converted to a private corporation - but with the backing of the US authorities to add support to the operation.

In affect Fannie Mae is responsible for buying up mortgage deals from the banks and repacking them for sale on the secondary market. This allows the banks to improve liquidity and gives them a ready market for raising funds when required.

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