What does FNMA primarily do in the financial market?

What does FNMA primarily do in the financial market?

• A. Buys and sells government bonds
• B. Provides savings accounts and personal loans
• C. Purchases mortgages and issues mortgage-backed securities
• D. Offers insurance products to homeowners

Answer: (C)

The Federal National Mortgage Association, commonly known as FNMA or Fannie Mae, plays a critical role in the financial market by primarily purchasing mortgages and issuing mortgage-backed securities. This activity is fundamental to the housing market because it helps facilitate the availability of home loans for consumers. When FNMA buys mortgages, it provides liquidity to lenders, enabling them to offer more loans to prospective homeowners. This process essentially supports the flow of funds in the housing market, making it easier for people to buy homes. By converting these individual mortgages into mortgage-backed securities, Fannie Mae enables investors to purchase those securities, which can yield returns based on the mortgage payments made by homeowners. This mechanism not only aids in spreading the risk associated with individual mortgages but also attracts additional investment into the housing sector, further stabilizing and stimulating the market. Thus, understanding FNMA's primary function of purchasing mortgages and issuing mortgage-backed securities is essential for grasping the dynamics of the housing finance system and how it impacts the broader economic landscape.

The Federal National Mortgage Association, commonly known as FNMA or Fannie Mae, plays a critical role in the financial market by primarily purchasing mortgages and issuing mortgage-backed securities. This activity is fundamental to the housing market because it helps facilitate the availability of home loans for consumers.

When FNMA buys mortgages, it provides liquidity to lenders, enabling them to offer more loans to prospective homeowners. This process essentially supports the flow of funds in the housing market, making it easier for people to buy homes. By converting these individual mortgages into mortgage-backed securities, Fannie Mae enables investors to purchase those securities, which can yield returns based on the mortgage payments made by homeowners. This mechanism not only aids in spreading the risk associated with individual mortgages but also attracts additional investment into the housing sector, further stabilizing and stimulating the market.

Thus, understanding FNMA's primary function of purchasing mortgages and issuing mortgage-backed securities is essential for grasping the dynamics of the housing finance system and how it impacts the broader economic landscape.