What impact does Fannie Mae have on the primary mortgage market?

Fannie Mae plays a significant role in the primary mortgage market by doing two main things that support mortgage lending.

First, Fannie Mae provides additional funds for the primary market. It does this by purchasing mortgages from lenders, which enables those lenders to free up their capital. This influx of capital allows lenders to make more loans, effectively increasing the availability of mortgage credit to borrowers. By ensuring that there is a steady flow of funds, Fannie Mae helps stabilize the primary mortgage market.

Second, Fannie Mae sets standards for mortgage loans. By establishing guidelines regarding loan types, borrower eligibility, and underwriting criteria, Fannie Mae ensures a certain quality of loans that are eligible for purchase. These standards provide predictability for both lenders and borrowers, encouraging responsible lending practices and ensuring that loans meet specific requirements that investors are looking for.

By fulfilling both roles—providing liquidity and setting standards—Fannie Mae significantly influences the efficiency and stability of the primary mortgage market. Thus, the correct answer reflects its dual impact on ensuring that mortgage credit remains available while also adhering to established lending standards.