Mortgage-Backed Securities

After purchasing mortgages on the secondary market, Fannie Mae pools them to form mortgage-backed securities (MBS). MBS are asset-backed securities secured by a mortgage or pool of mortgages. Fannie Mae’s mortgage-backed securities are purchased by institutions such as insurance companies, pension funds, and investment banks. It guarantees payments of principal and interest on its MBS. ? ?

Fannie Mae also has its own portfolio, commonly referred to as a retained portfolio. This invests in its own mortgage-backed securities as well as those from other institutions. Fannie Mae issues debt called agency debt to fund its retained portfolio. ? ?

The Financial Crisis

Fannie Mae has been publicly traded since 1968. ? ? Until 2010, it traded on the New York Stock Exchange (NYSE). It was delisted following the mortgage, housing, and financial crisis after its stock plummeted below the minimum capital requirements mandated by the New York Stock Exchange. It now trades over-the-counter. ? ?

Unethical lending practices led to the crisis. In 2007, the housing bubble burst, and hundreds of thousands of these borrowers went into default, which led to what was known as the subprime meltdown. This had a ripple effect on the credit markets, which sent the financial markets into a tailspin and created the most severe recession in decades in the United States. Lees verder →

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