Fannie Mae and Freddie Mac: What to Know

The Ins and Outs of Fannie Mae vs. Freddie Mac

Fannie Mae and Freddie Mac are government-sponsored enterprises (GSEs) created to support homeownership and rental housing in the United States. If you want to buy a home, you might want to research these institutions to gain a better understanding of the U.S. housing market. Both play a major role in shaping mortgage availability and interest rates. This article will break down how Fannie Mae and Freddie Mac work, their history, and the similarities and differences between them.

What are Fannie Mae and Freddie Mac?

Fannie Mae is the nickname for the Federal National Mortgage Association (FNMA) and Freddie Mac is the nickname for the Federal Home Loan Mortgage Corporation (FHLMC). Rather than originating home loans, they instead buy mortgages from lenders, package them into mortgage-backed securities (MBSs), and sell them to investors. This practice is sometimes called the “secondary mortgage market” and ensures a consistent flow of money for lenders to issue new loans, which helps keep interest rates lower than they would otherwise be. By purchasing mortgages, Fannie Mae and Freddie Mac help lenders get the money they need to offer more mortgages to more customers.

Fannie Mae buys both fixed-rate and adjustable-rate conventional loans with terms up to 30 years for single-family or multi-family homes. The name "Fannie Mae mortgages" generally refers to conventional loans that meet the credit, income, and financial standards that make them eligible to be purchased by Fannie Mae. These mortgages are also referred to as conforming loans. Like Fannie Mae, Freddie Mac focuses on buying mortgages with similar terms to Fannie Mae for single-family homes that conform to its credit, income, and financial standards while also supporting financing for multi-family homes. There are some slight differences in the standards that Fannie and Freddie use to decide which mortgages are eligible for purchase, which are highlighted later in this article.

History of Fannie and Freddie

Fannie Mae was created during the Great Depression in 1938 to provide affordable home financing as part of President Franklin D. Roosevelt’s New Deal. In 1968, Fannie Mae became a GSE and publicly traded company and presently remains in the top 10 largest companies in the U.S. by assets, with over $4.3 trillion in assets. Freddie Mac was chartered by Congress in 1970 to expand the secondary mortgage market and be an additional source of affordable financing for U.S. homebuyers. Like Fannie, Freddie is also a publicly traded company.

However, Fannie Mae and Freddie Mac have remained under government control since 2008. When the housing market collapsed in 2007-2008, rising foreclosures and falling home prices caused massive losses on the MBSs that Fannie and Freddie guaranteed. On September 6, 2008, the Federal Housing Finance Agency (FHFA) placed both Fannie and Freddie into conservatorship to stabilize the housing market and help them remain operational. Their conservatorship status is still in place today as policymakers debate long-term reforms and potential privatization for these institutions.

Freddie Mac vs. Fannie Mae vs. Ginnie Mae

Ginnie Mae is a wholly owned government corporation that supports financing for mortgages guaranteed by agencies of the federal government, such as VA loans and FHA loans. Ginnie Mae does this by buying mortgages and selling them on the secondary mortgage market to investors, similarly to the way Fannie Mae and Freddie Mac operate.

Ginnie Mae is the nickname of the Government National Mortgage Association (GNMA), which was created in 1968 when Fannie Mae split into two organizations. At that time, Fannie Mae turned its focus to purchasing conventional loans, and Ginnie Mae was created to purchase government-backed mortgages. Ginnie Mae’s parent agency is the U.S. Department of Housing and Urban Development (HUD).

Will Fannie Mae or Freddie Mac buy my mortgage?

Fannie Mae and Freddie Mac buy about 70% of the home loans that lenders originate, according to the National Association of Realtors (NAR). Fannie or Freddie may buy your mortgage if it meets their specific eligibility guidelines, which is required for the loan to close if it’s a conventional loan. You can find out if Fannie or Freddie own your mortgage by visiting their official websites and using the Fannie Mae lookup tool or the Freddie Mac lookup tool, or calling them directly.

Fannie Mae vs. Freddie Mac: Compared

Fannie Mae and Freddie Mac both expand access to mortgages, attract secondary mortgage market investors, and hold government conservatorship status. Though their overall purpose is the same, there are some differences in where they purchase mortgages from, the standards they use to determine the mortgages they buy, and the loan programs they offer.

Final Thoughts: Fannie and Freddie—What to know

Fannie Mae and Freddie Mac support the U.S. housing market and economy by purchasing mortgages from lenders, which helps ensure housing market liquidity and stability. While they operate slightly differently, both play a critical role in making home financing more accessible for homebuyers. Though they are currently under government conservatorship, in the future both may be reformed or become privatized, though they will likely remain central to U.S. home financing.

By purchasing loans from lenders, Fannie and Freddie enable lenders to offer more mortgages at lower rates, ultimately making homeownership more affordable, especially for lower-income borrowers. If you’re exploring your homeownership options, Freedom Mortgage can help you find out how much you qualify for, how much money you can save, and then help you take the next steps toward owning a home.