Mortgage Advice
Mortgages

Understanding Mortgages: What are Fannie Mae and Freddie Mac?

(7/30/2012) In the midst of one of the most uncertain real estate markets in history, it’s more important than ever to be informed. In a continuing series, we take a look at some of the most pressing questions about mortgages, refinancing, home equity, and other real estate options available to you.

A major topic of conversation in the last few years of housing market turmoil has been the status and role of two organizations called Fannie Mae and Freddie Mac.

The Federal National Mortgage Association (Fannie Mae) and the Federal Home Mortgage Corporation (Freddie Mac) are “government-sponsored enterprises” (GSEs). They are privately owned yet were created by and receive support from the federal government. Together, these two entities serve to develop and support a secondary market in home mortgages.

Fannie Mae and Freddie Mac are important because they are the largest source of housing finance in the U.S. They purchase mortgages from lenders, holding some and selling others in the form of securities. This serves to attract investors to the mortgage market, increasing the pool of money available to lend to homeowners.

The activities by Fannie Mae and Freddie Mac work to lower interest rates and increase potential lending amounts for most borrowers. But in recent years, the collapse of the housing market caused in part by activities in the secondary market made Fannie Mae and Freddie Mac insolvent. By 2007, the two organizations held mortgages valued at $4.7 billion, a massive number that equaled the total publicly-held debt of the U.S. Treasury. It continued to grow in size until September 2008, when the federal government assumed ownership of the two organizations.

The federal takeover placed the two companies into conservatorship, and the companies remain there today.