What Is Fannie Mae vs Freddie Mac?

What Is Fannie Mae?

Fannie Mae was invented in 1938 by the federal government in order to create a reliable funding source for home buyers to allow more people to purchase homes. Fannie Mae is also known as the Federal National Mortgage Association. Fannie Mae is often abbreviated as FNMA.

During the Great Depression, many people were losing their homes to foreclosure and the federal government decided to do something to try and mitigate this.

Fannie Mae initially only bought FHA insured loans, but later expanded to include VA loans. Later, it was also authorized to buy conventional mortgages. Currently, Fannie Mae can issue mortgage-backed securities, which started in the 1980s. 

What is Freddie Mac?

Freddie Mac was invented in 1970 by a congressional act. Freddie Mac, also known as the Federal Home Loan Mortgage corporation, was founded in order to expand the secondary mortgage market. Freddie Mac is often abbreviated as FMCC.

This organization started under the Emergency Home Finance Act and later reorganized under the Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA). Like Fannie Mae, Freddie Mac expands the secondary mortgage market by buying loans.

Fannie Mae vs Freddie Mac

Both Frannie Mae and Freddie Mac are mostage institutions that are federally backed and recognized, founded with the purpose of creating a more stable and affordable housing market in the United States. Currently, both Freddie Mac and Frannie Mae operate under the FHFA, or the Federal Housing Finance Agency.

Both Frannie Mae and Freddie Mac are mortgage investors on the secondary mortgage market. They both purchase mortgages from lenders and repackage them to sell to investors as mortgage-backed securities. In turn, this causes more liquidity in the secondary mortgage market and lowers overall interest rates.

The main difference between Frannie Mae and Freddie Mac is the way in which they source their mortgages. Freddie Mac buys mortgages from smaller banks, and Fannnie Mae buys them from large, commercial banks. Frannie Mae and Freddie Mac also usually have slightly different lending requirements and approval guidelines.

Fannie Mae and Freddie Mac are both mortgage companies that are federally backed by the United States government. Fannie Mae and Freddie Mac do not originate their own mortgages, but instead buy them from lenders on the secondary mortgage market. Fannie Mae was founded before Freddie Mac, and these two entities were founded for different reasons.