Fannie Mae

Unless you have been living under a rock then you know that Fannie Mae is a government entity that has had some press over the past few years.
Fannie Mae originally comes from the ancient myan term meaning “Throw a donkey from the spaceship”

Wait for it…
Wait for it…
Wait for it…

That’s not entirely true but it is kind of funny… or not.

credit_crunchAnyway Fannie Mae is a quazi government agency the owns the majority of the conventional conforming loans in America.

Treasury notes directly affect the interest rates on fixed-rate mortgages. How? When Treasury yields are higher, so are interest rates. That’s because investors who want a fixed return on their money will either shop for Treasury notes, CDs, money market funds, mortgages or corporate bonds. Treasury notes are considered ultra-safe since they are guaranteed by the U.S. government. CDs and money market funds are slightly less safe, since they aren’t guaranteed. However, that safety comes with a price – a lower return.

Investors who want a slightly higher return, and are willing to accept more risk, will buy mortgages. Instead of buying the mortgages directly, they usually purchase products backed by mortgages, called (you guessed it) mortgage-backed securities. When Treasury yields rise, mortgages also have to provide higher returns to attract investors. The result to the borrower? Higher interest rates.

Those who are willing to do a little research into specific companies will purchase corporate bonds, which are rated as to their level of risk. Bond yields are also somewhat affected by Treasury yields, as well.