Understanding Freddie Mac and Fannie Mae

Fannie Mae and Freddie Mac may sound like the names of some country music star. In fact, these are some of the largest mortgage companies in the United States. These government-sponsored private mortgage companies are often referred to as “secondary market lenders.” However, they not only back and buy loans—they set rules and regulations for the market. By regulating and securing home mortgage loans, they help make homeownership more accessible. Read why it’s important to understand the key differences between Fannie Mae and Freddie Mac in this week’s blog post from Nickel City Funding in Orchard Park, NY.

The Federal National Mortgage Association

Fannie Mae stands for the Federal National Mortgage Association (FNMA- pronounced Fannie Mae). It was formed in 1938 as part of Roosevelt’s New Deal package, as part of an effort to sustain homeownership through mortgage-backed securities (MBS). These products are packaged mortgage loans that can be sold to investors. Fannie Mae effectively increased the number of lenders, who then did not have to rely on personal funds.

Ginnie Mae, or Government National Mortgage Association, came after Fannie in 1968. Ginnie Mae is an extension of HUD and specifically deals with non-conventional loans such as FHA loans, VA Loans, and USDA loans (which are also known as government-insured loans). Therefore, Fannie focuses on private while its sister agency, Ginnie, focuses on public loan programs.

The Federal Home Loan Mortgage Corporation

Freddie Mac is the brother of Fannie and Ginnie; but is a bit more unusual. It stands for the Federal Home Loan Mortgage Corporation. Freddie is derived from “F” and Mac from “MC.” It’s up to speculation why the “HL” was left out. It led to so much confusion that in 1997 the company dropped the acronym FHLMC altogether and officially became Freddie Mac. Freddie Mac is very similar to Fannie Mae but came later in 1970. Freddie’s role was to expand the packages to secondary market lenders. However, Freddie focuses on smaller banks and lenders, while Fannie focuses on larger commercial banks.

Finding the Right Mortgage for Your New Home

It is important to understand both Fannie Mae and Freddie Mac as they govern the regulations that guide your mortgage lenders—from commercial to small and private. Fannie Mae and Freddie Mac loans are typically conventional loans, which tend to dominate the market. They are not government-insured, so if the two major agencies decline, then homeownership becomes much more costly. These companies will have a great impact on any mortgage you hope to secure, so monitoring their financial health and policies is important for home buyers.

If you would like to learn more about Fannie Mae, Freddie Mac, or various mortgage programs–contact Nickel City Funding in Orchard Park, NY. Our professional staff will guide you on how to find homes in the area as well as monitor the trends of these two major agencies.