Fannie Mae and Freddie Mac are government-sponsored enterprises (GSEs). They are privately owned but are funded by the federal government and assume public responsibilities. They are used to add liquidity to the housing market however neither provides loans directly to borrowers.
Neither Fannie Mae nor Freddie Mac have direct contact with borrowers. Instead they work solely with lenders on the secondary market. As such, homeowners and borrowers may be confused about these entities. In order to clarify what they do let’s first take a look at their official names:
Freddie Mac: Federal Home Mortgage Loan Corporation (FHLMC)
Fannie Mae: Federal National Mortgage Association (FNMA)
Fannie Mae was created in 1938 by FDR’s New Deal in order to provide local banks with federal money to fund home mortgages. Freddie Mac was created a little over 30 years later in 1970 to shake up the monopoly Fannie Mae held over the secondary mortgage market.
It is difficult to note any real differences between how Fannie Mac and Freddie Mac operate. Both Fannie Mae and Freddie Mac buy mortgages on the secondary market then sell them to investors. This means both enterprises purchase loans from banks so the banks have more money to lend. Both GSEs reduce the cost of mortgage credit among other benefits. Generally speaking, they keep funds flowing to the mortgage market.
At Kara Homes and Associates, we understand that different mortgage lending companies and their benefits can be confusing. Please contact us with any of your questions or concerns and we will be happy to explain how these enterprises affect the sale of your home.