Fannie Mae and Freddie Mac explained

You may have heard the names Fannie Mae and Freddie Mac in the news and wondered what they are. They are government-sponsored enterprises that play a significant role in the mortgage industry. Both Fannie and Freddie buy mortgages from lenders, pool them together and sell them as mortgage-backed securities to investors.

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Fannie Mae is another name for the Federal National Mortgage Association (FNMA), which the government created in 1938. Freddie Mac is another name for the Federal Home Loan Mortgage Corporation (FHLMC), which the government created in 1970. Both Fannie and Freddie were initially formed to stabilize the U.S. residential mortgage market and expand opportunities for homeownership and affordable rental housing.

The primary business of both Fannie Mae and Freddie Mac is to purchase home loans from lenders so lenders can replenish their supply of capital funds and make more mortgage loans to borrowers. While both entities typically buy conventional loans that conform to certain loan amount limits and underwriting standards, they also may buy government-insured housing loans such as FHA, VA and USDA loans.

During the global financial crisis in 2008, Fannie Mae and Freddie Mac guaranteed over $5 trillion in mortgage debt. The share prices of both companies plunged and investors were fearful of a collapse due to escalating foreclosure rates and plummeting housing prices. The fear was that both entities lacked the capital to absorb the predicted losses. In September of 2008, Fannie Mae and Freddie Mac were both placed into conservatorship of the Federal Housing Finance Agency (FHFA), which put Fannie Mae and Freddie Mac under direct government control.

Today, the role of Fannie Mae and Freddie Mac has not changed very much. Both entities still guarantee and purchase loans from mortgage lenders, and they have taken steps to improve their financial condition as well as build a profitable business.

For more information, speak with a loanDepot licensed loan officer at (888) 983-3240.

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