Fannie Mae, Under Investigation, Plays a Huge Part in Home Loan Market

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This is Gwen Outen with the VOA Special English Economics Report.

Americans say owning a home is part of the American dream. But
many people may not recognize the part that a company called Fannie
Mae plays in the home loan industry. Now government financial
investigators have found serious problems at the company.

Fannie Mae began as the Federal National Mortgage Association.
Congress established it in nineteen thirty-eight. It became a
private corporation in nineteen seventy, and later changed its name
to Fannie Mae.

A mortgage is a loan secured by property. A person goes to a
lender, usually a bank, to borrow money for a home. The person pays
the loan back, with interest, over a period of long as thirty years.
The bank must wait a long time to get its money back. So Fannie Mae
buys mortgages from lenders. This supplies them with money to use
for other loans.

Investors buy shares in Fannie Mae so the company has money to
pay for mortgages. Fannie Mae also sells and trades what are called
mortgage-backed securities. Bonds based on mortgages are considered
low-risk investments. However, these are not guaranteed by the

Fannie Mae and a similar company, Freddie Mac, control about half
the home loans in America. Experts say the market is worth almost
eight million million dollars.

Last year, investigators found problems with financial
record-keeping at Freddie Mac. But they say the problems at Fannie
Mae are a lot more serious.

An agency called the Office of Federal Housing Enterprise
Oversight accused Fannie Mae of hiding changes in its value. The
agency criticized the company for poor supervision and not carefully
reporting its finances. Congress, the Securities and Exchange
Commission and the Justice Department are also investigating Fannie

Franklin Raines, the chief executive officer, defends the actions
of the company. Mister Raines says Fannie Mae did not falsely
represent its financial condition.

Industry experts say the work of Fannie Mae and Freddie Mac helps
keep mortgage rates lower, so more Americans can own homes. But the
price of Fannie Mae stock has dropped after news of the

Experts say the company could have to pay more when it needs to
borrow money. They say the situation could also lead to higher
mortgage rates for home buyers in the future.

This VOA Special English Economics Report was written by Mario
Ritter. This is Gwen Outen.