What are Fanny Mae & Freddie Mac?

What are Fanny Mae & Freddie Mac?
••• Thinkstock/Stockbyte/Getty Images

Fannie Mae and Freddie Mac are government-sponsored enterprises that were created and are regulated by the United States Congress. Their role is to buy mortgages from banks and then market them as mortgage-backed securities to investors. If you get a home loan that conforms to Fannie Mae and Freddie Mac guidelines, it increases the chances that your mortgage will be purchased by Fannie or Freddie. Online tools let you verify if your loan has been purchased by either one of these companies.

Fannie Mae, Freddie Mac, and You

Fannie Mae and Freddie Mac operate in the “secondary" mortgage market because they don't directly loan you the money for your mortgage. The theory is that purchasing mortgages from banks provides stability to the housing market while increasing home ownership rates because banks feel more comfortable about borrowers who might have problems qualifying for a mortgage. Also, having mortgages purchased frees up bank resources to loan even more money.

Why They Were Created

Fannie Mae was started in 1938 as a government agency and became a private enterprise in 1968. Freddie Mac received its congressional charter in 1970. According to Vestell Wright, a mortgage broker in Austin, Texas, Freddie Mac originally operated in the savings and loan industry, leaving the conventional mortgage market to Fannie Mae. Over time those distinctions ceased to exist, with both entities fulfilling similar functions. In 2008, the Federal Housing Finance Agency placed Fannie and Freddie into conservatorship to try to curtail and recover significant financial losses in both companies. Congress continues to scrutinize and regulate Fannie and Freddie.