What are Fanny Mae and Freddie Mac?

by Karen S. Johnson ; Updated July 27, 2017
Adult couple standing in front of their home that has just been sold

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.

About the Author

Based in Central Texas, Karen S. Johnson is a marketing professional with more than 30 years' experience and specializes in business and equestrian topics. Her articles have appeared in several trade and business publications such as the Houston Chronicle. Johnson also co-authored a series of communications publications for the U.S. Agency for International Development. She holds a Bachelor of Science in speech from UT-Austin.

Photo Credits

  • Thinkstock/Stockbyte/Getty Images