Legal Definitions - Federal National Mortgage Association

The Federal National Mortgage Association, also known as Fannie Mae, is a corporation that is privately owned and managed but is chartered by the U.S. government. Its main purpose is to provide a secondary mortgage market for the purchase and sale of mortgages that are guaranteed by the Veterans Administration and those insured under the Federal Housing Administration.

For example, if a bank lends money to a homebuyer and that loan is guaranteed by the Veterans Administration, the bank can sell that loan to Fannie Mae. Fannie Mae then packages that loan with other loans and sells them to investors as mortgage-backed securities. This allows the bank to free up capital to make more loans, while investors can earn a return on their investment.

Fannie Mae plays an important role in the housing market by providing liquidity to the mortgage market, which helps to keep interest rates low and makes it easier for people to buy homes.