Fannie Mae and Freddie Mac are two government-sponsored enterprises (GSEs) in the United States created by Congress to support and stabilize the mortgage market. Fannie Mae, officially the Federal National Mortgage Association (FNMA), was established in 1938 during the Great Depression to expand the secondary mortgage market. By securitizing mortgage loans into mortgage-backed securities (MBS), it allows lenders to refinance and have more capital to lend to new homebuyers. Fannie Mae primarily buys mortgages from larger commercial banks and mortgage lenders. Freddie Mac, officially the Federal Home Loan Mortgage Corporation (FHLMC), was created in 1970 to further expand the secondary mortgage market by buying mortgages from smaller banks, regional banks, and credit unions. Like Fannie Mae, Freddie Mac pools these mortgages and sells them as mortgage-backed securities to investors, thus providing liquidity that enables lenders to make more loans. Both entities do not originate loans themselves but buy conforming loans from lenders, guarantee timely payments to investors in MBS, and help keep mortgage funds flowing to the housing market. They were both placed under conservatorship by the Federal Housing Finance Agency (FHFA) in 2008 after the housing market collapse to ensure continued stability and affordability in the mortgage market. In summary:
- Fannie Mae was created in 1938 to make housing more affordable and buys loans mainly from large banks.
- Freddie Mac was created in 1970 to compete with Fannie Mae and buys loans from smaller banks.
- Both convert these loans into mortgage-backed securities to provide liquidity to lenders and stability to the housing finance system.
- Both are government-sponsored enterprises currently under federal conservatorship.
These institutions play a vital role in the U.S. housing market by increasing loan availability and reducing mortgage interest rates through their operations in the secondary mortgage market. They have assets in the trillions and are among the largest financial entities in the country. Let me know if you want more detailed information on any specific aspect of Fannie Mae or Freddie Mac.
