Both Fannie Mae and Freddie Mac are nationally recognized, federally backed mortgage institutions committed to providing the U.S. housing market with liquidity, stability and affordability. This mission for both government-sponsored enterprises, or GSEs, is crucial to the nation’s housing finance system. Fannie Mae and Freddie Mac both compete on the secondary mortgage market as mortgage investors. They serve mortgage markets and provide liquidity to mortgage lenders by purchasing mortgages from lenders and then repackaging them into mortgage-backed securities for sale to investors on the secondary mortgage market. Freddie Mac and Fannie Mae’s practice of purchasing mortgage loans is beneficial to mortgage markets for two main reasons. First, purchases made by each enterprise help ensure that home buyers and investors who purchase property have a steady and stable supply of mortgage money. If the banks and non-bank lenders that originate mortgages were not able to sell them to Fannie Mae and Freddie Mac, they would not be able to continue to write loans.Functions
Allows New Loans To Be Written
Benefits The Secondary Mortgage Market
Second, Fannie Mae and Freddie Mac expand the pool of funds available for housing by attracting new secondary mortgage market investors by offering packaged mortgage-backed securities and guaranteeing the timely payment of principal and interest on the underlying mortgages. This makes secondary mortgage markets more liquid and lowers interest rates paid by mortgage borrowers.
Histories
Though both enterprises are better known by their nicknames, Fannie Mae and Freddie Mac have more official titles: Fannie Mae is the Federal National Mortgage Association (FNMA) and Freddie Mac is the Federal Home Loan Mortgage Corporation (FMCC).
Fannie Mae
Fannie Mae was created in 1939 to combat the lack of affordable housing during the Great Depression. It helped provide continuous and steady funding for housing. It also introduced a new type of mortgage to the market: the long-term, fixed-rate loan with an option to refinance at any time.
In 1954, Fannie Mae adopted a private-public, mixed-ownership hybrid structure, under the Federal National Mortgage Association Charter Act.
For years, Fannie Mae was the primary buyer and seller of federally backed mortgages in the country. In 1968, it was privatized by the U.S. government, making it a shareholder-owned company funded entirely with private capital. Two years after this, Fannie Mae was approved to buy conventional mortgages in addition to Federal Housing Administration (FHA) and Department of Veterans Affairs (VA) loans.
Fannie Mae also became less popular in 1970 when Congress created Freddie Mac to compete with Fannie Mae.
Freddie Mac
Freddie Mac was created under the Emergency Home Finance Act to expand the secondary mortgage market and reduce interest rate risk for banks.
In 1989, Freddie Mac evolved into a shareholder-owned company as part of the Financial Institutions Reform, Recovery, and Enforcement Act.
