What Is the Difference Between Fannie Mae and Freddie Mac?

5 Min Read | Published: May 29, 2024

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Understand the distinctions between Fannie Mae and Freddie Mac and their roles in the mortgage market. Learn how these entities influence mortgage lending and homeownership.

At-A-Glance

Fannie Mae and Freddie Mac are government-sponsored enterprises (GSEs) that guarantee most of the mortgages in the U.S.¹
Both Fannie Mae and Freddie Mac both buy mortgages from lenders to hold in their portfolios or repackage as Mortgage-Backed Securities (MBS) which can then be sold.
The “implicit guarantee” is the public perception that securities held by Fannie Mae and Freddie Mac are safe because the two companies are backed by the U.S. Government.

The Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac) are government-sponsored enterprises (GSEs) that are integral to the mortgage market.² In this article, we’ll delve into their differences, their roles in the housing finance system, and their impact on mortgage lending and homeownership.

What Do Fannie Mae and Freddie Mac Do?

Both Fannie Mae and Freddie Mac both buy mortgages from lenders to hold in their portfolios or repackage as Mortgage-Backed Securities (MBS) which can then be sold. Lenders then use the money from selling the mortgages to create more loans. This system helps to create a continuous supply of mortgage funding.³

Fannie Mae was chartered by the United States Congress in 1938. Its purpose is to provide “liquidity, stability, and affordability” in the mortgage market. They do this by purchasing mortgage loans from commercial banks and lenders. Those mortgages can be held in Fannie Mae’s portfolio or converted into mortgage-backed securities.⁴

The funds that lenders receive from Fannie Mae increase their liquidity, making it possible for them to offer reasonable mortgage rates and terms to prospective homeowners. Though they are not a direct lender, Fannie Mae was the first to introduce the model for a thirty-year fixed-rate mortgage loan. They’ve been a private shareholder-owned corporation since 1968.⁵

Freddie Mac a subsidiary of the Federal Home Loan Bank System (FHLBS). Congress chartered it in 1970 to expand the secondary mortgage market. Like Fannie Mae, they purchase mortgage loans from direct lenders. They mainly focus on smaller banks and credit unions.⁶

Freddie Mac vs. Fannie Mae: What’s the Difference?

Fannie Mae and Freddie Mac are both GCEs that function in a similar way, but there are some distinct differences between the two:

Target Market Fannie Mae buys most of their loans from larger commercial banks and lenders. Freddie Mac targets smaller banks and credit unions.
Portfolio Construction
Fannie’s portfolio is comprised primarily of single-family home mortgages. Freddie has a history of buying loans for larger multi-unit properties.⁷
Age
Fannie Mae was chartered by Congress in 1938. Freddie Mac was chartered by Congress as a private company in 1970.⁸

Fannie Mae was established to provide liquidity to cash-strapped banks coming out of the Great Depression. Freddie Mac was chartered to accommodate an expanding secondary mortgage market.

What Is the Implicit Guarantee?

The “implicit guarantee” is the public perception that securities held by Fannie Mae and Freddie Mac are safe because the two companies are backed by the U.S. Government. That belief was reinforced when the U.S. Treasury bailed them out in 2008.⁹

The Federal Housing Finance Agency (FHFA) put both companies into conservatorship on 2008.¹⁰ The U.S. Treasury provided $190 billion in bailout funds to keep them solvent. That money was paid back by 2014. However, they still remain under conservatorship.¹¹

Mortgage Assistance

If you have a loan that’s backed by Fannie Mae or Freddie Mac, and are struggling to pay your mortgage, or facing a potential foreclosure, you may have options.

If you have a Fannie Mae or Freddie Mac loan and your mortgage servicer learns that you’ve applied to the Homeowner Assistance Fund program in your state, then they are generally required to suspend foreclosure activity for up to 60 days.¹² Be sure to check the latest legislation and guidance to see whether this is still the case. You can visit the Get Homeowner Assistance page on the Consumer Financial Protection Bureau’s website.

To see if Fannie Mae or Freddie Mac owns your mortgage loan, you can use Fannie Mae’s mortgage loan lookup tool and Freddie Mac’s loan lookup tool.¹³

Other types of mortgage help may also be available. If you believe you will struggle to pay your upcoming mortgage payments, get in touch with your loan provider to ask them about loan mitigation options.

Frequently Asked Questions

Fannie Mae and Freddie Mac are GSEs that purchase mortgage loans from banks and credit unions. The Federal Housing Administration (FHA) is a government agency that insures loans for moderate and low-income borrowers.

In 2023, the National Association of Realtors reported that Fannie Mae and Freddie Mac had supported roughly 70% of conventional mortgage loans offered by private lenders.¹⁴

The Takeaway

The U.S. Congress chartered Fannie Mae and Freddie Mac to add liquidity to the mortgage market. Both are backstopped by the U.S. Treasury. Neither is a direct lender. They purchase mortgage loans from banks and credit unions to create liquidity in those institutions. That liquidity can be used to offer additional mortgages to prospective homeowners.

¹ “What are Fannie Mae and Freddie Mac?,” Consumer Financial Protection Bureau (CFPB)

^{2,3,4,6,7,8,9,11} “Fannie Mae and Freddie Mac: An Overview,” Investopedia

^5,10 “Fannie Mae: Who We Are,” Fannie Mae

⁶ “A Brief History of the Housing Government-Sponsored Enterprises,” Federal Housing Finance Agency

⁷ “SEC Charges Former Fannie Mae and Freddie Mac Executives with Securities Fraud,” SEC

^12,13 “Foreclosure Moratorium Extension 2024,” NOLO

¹⁴ “Fannie Mae vs. Freddie Mac: What’s the difference?,” Bankrate

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Kevin D. Flynn is a financial services provider, business coach, and financial writer. He lives in Leominster, Massachusetts, with his wife Evelyn, two cats, and ten wonderful grandchildren.

All Credit Intel content is written by freelance authors and commissioned and paid for by American Express.

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