Freddie Mac and Fannie Mae, who are they, or better yet what are they? Both are significant players in the mortgage industry. Understanding the difference between the two will help you, as a borrower, make the decision that is best for you.
Fannie Mae (FNMA) and Freddie Mac (FHLMC) are government-sponsored enterprises that purchase mortgage loans from smaller banks or credit unions and guarantee these loans on the mortgage market for low- to median-income borrowers. These mortgages are then sold to investors as mortgage-backed securities thus keeping the mortgage market accessible. Fannie Mae and Freddie Mac do not directly write loans but buy them if they meet the requirements after creditors approve applicants, underwrite the loan, and finally close. Specifically, they buy conforming conventional loans.
Fannie Mae was created in 1938, to purchase FHA loans and was operating on a government budget initially, until in 1968 it became a private, shareholder-owned corporation. After the change in ownership, Fannie Mae pivoted to purchasing conforming conventional loans. In 2008, the Federal Housing Finance Agency (FHFA) put Fannie Mae into a conservatorship by purchasing 79.9% of its preferred stock. This happened in response to the housing market crash and the financial recession. Since then, Fannie Mae has been under the FHFA’s conservatorship.
Freddie Mac was created in 1970, as a competitor for Fannie Mae. Freddie Mac performs the same functions as Fannie Mae, except they focus more on small banks and lenders. By focusing on this market segment, Freddie Mac helps provide even greater liquidity in the market by keeping small lenders well-funded. Freddie Mac was also placed under FHFA conservatorship in 2008.
Now that you have the basics down of these two entities, we hope you feel more confident in your lending journey!