Fannie Mae & Freddie Mac Overview

A primer on the two major mortgage assistance giants

Dating back at least to the end of World War II, owning a home has come to embody the very essence of the American dream. To help make that dream a reality for millions of families, the federal government established two large, but little-understood institutions, which have come to be nicknamed Fannie Mae and Freddie Mac.

Fannie Mae and Freddie Mac have been charged with creating liquidity and stability in the residential housing market, thereby helping to make home ownership more affordable for millions of families. They have accomplished this by creating a secondary mortgage market and guaranteeing mortgages originated by other institutions. By purchasing mortgages from other originating banks and financial institutions and bundling them into government-backed securities, Fannie Mae and Freddie Mac both freed the originating lenders to make more loans while also facilitating outside investments in the secondary mortgage market.

Fannie Mae & Freddie Mac

The Federal National Mortgage Association, or Fannie Mae, is the older of the two entities, created by Congress in 1938 as a response to the difficulties in the residential housing market during the Great Depression. Freddie Mac, whose formal name is the Federal Home Loan Mortgage Corporation, was chartered by Congress in 1970. These institutions can help borrowers find the mortgage assistance they need to own a home and also help make mortgage properties more affordable. Both remain government-sponsored enterprises with the federal government continuing to exercise significant control and oversight over operations.

Private investors

Fannie Mae and Freddie Mac have historically been the largest conduits for loans to pass from lenders into the secondary mortgage market in the United States. In recent years however, other private institutions such as banks and securities firms also participated in purchasing loans from lenders and bundling them into private rather than government-backed mortgage securities. With the recent mortgage crisis, many of these private investors left the secondary market, leaving Fannie Mae and Freddie Mac to again be the primary channel for loans into the secondary mortgage market.

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