By packaging mortgages into MBS and guaranteeing the timely payment of principal and interest on the underlying mortgages, Fannie Mae and Freddie Mac attract to the secondary mortgage market investors who might not otherwise invest in mortgages, thereby expanding the pool of funds available for housing.
That makes the secondary mortgage market more liquid and helps lower the interest rates paid by homeowners and other mortgage borrowers. Fannie Mae and Freddie Mac also can help stabilize mortgage markets and protect housing during extraordinary periods when stress or turmoil in the broader financial system threaten the economy.
Fannie Mae was first chartered by the U. Today it is a shareholder-owned company that operates under a congressional charter. Freddie Mac was chartered by Congress in as a private company to likewise help ensure a reliable and affordable supply of mortgage funds throughout the country. We Make Home Possible Our continuous support in, good economic conditions and bad, and in markets that might otherwise be underserved, provides stability to the housing market and helps families rent, buy and keep homes they can afford.
Our People Our inclusive and diverse work culture drives us forward and makes us stronger. Our History Through these and other milestones, Freddie Mac has moved our company, and housing finance system, forward for a new era, helping to build a housing finance system for the nation. October December June November August Fannie Mae stopped being a federal government agency and became a private-public corporation under the Charter Act of Fannie Mae and Freddie Mac are very similar.
Both are publicly traded companies that were chartered to serve a public mission. The main difference between the two comes down to the source of the mortgages they buy. Federal Housing Finance Agency. Congressional Research Service. Accessed July 23, The Urban Institute. Center for American Progress. Real Estate Investing. Your Privacy Rights. To change or withdraw your consent choices for Investopedia.
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Your Money. Personal Finance. Your Practice. During the Great Depression , nearly one in four homeowners lost their homes to foreclosure , the banks didn't have any money to lend, and the nation faced a real housing crisis. It brought a new type of mortgage to the market: the long-term, fixed-rate loan with an option to refinance at any time.
For decades, Fannie Mae was the dominant buyer and seller of government-insured mortgages. Congress eventually did two things to boost competition in the secondary mortgage market:.
Fannie Mae was created as a federal government agency in as part of an amendment to the National Housing Act. Fannie Mae was converted into a public-private, mixed-ownership corporation in under the Federal National Mortgage Association Charter Act.
It became privately owned in and two years later became authorized to buy conventional mortgages in addition to FHA and VA loans. The agency started to issue mortgage-backed securities MBS in the s to provide more liquidity in the mortgage investment market. It gets the money to buy mortgage-related assets by issuing assorted debt securities in the U. It was established in under the Emergency Home Finance Act to expand the secondary mortgage market and reduce interest rate risk for banks.
Freddie Mac's charter is quite similar to Fannie Mae's in that it expands the secondary market for mortgages and MBSs by buying loans made by banks, savings and loans , and other lending institutions. But unlike Fannie Mae, which buys mortgages from major retail and commercial banks, Freddie Mac buys its loans from smaller banks, such as thrift banks , that focus on providing banking services to communities.
Fannie Mae and Freddie Mac have similar charters, mandates, and regulatory structures. Each buys mortgages from lenders to either hold in their portfolios or repackage as MBSs that can be sold. In turn, lenders use the money they get from selling mortgages to originate more loans. This helps individuals, families, and investors access a continuous and stable supply of mortgage funding. According to their charters, Fannie Mae and Freddie Mac "establish secondary market facilities for residential mortgages [and] provide that the operations thereof shall be financed by private capital to the maximum extent feasible.
Fannie Mae has one additional responsibility according to its charter: to manage and liquidate federally-owned mortgage portfolios to minimize any adverse effects on the residential mortgage market and minimize losses to the federal government. According to Fannie Mae and Freddie Mac's congressional charters , which gave them government-sponsored enterprise GSE status, they operate with certain ties to the U.
For instance, in September , during the height of the financial crisis , they were placed under the direct supervision of the federal government.
During normal times, the government ties remain a bit more hidden, but nonetheless important. According to their congressional charters:. The FHFA regulates, enforces, and monitors Fannie and Freddie's capital standards and limits the size of their mortgage investment portfolios. HUD is responsible for Fannie and Freddie's general housing missions.
Mortgage lending discrimination is illegal. If you think you've been discriminated against based on race, religion, sex, marital status, use of public assistance, national origin, disability, or age, there are steps you can take.
Fannie and Freddie's GSE status has created certain perceptions in the marketplace of safety. One was that the federal government would step in and bail out these organizations if either firm ever ran into financial trouble, as was seen in the lead-up to the Great Recession.
This is known as an implicit guarantee. Because the market believed in this implicit guarantee, Fannie Mae and Freddie Mac were allowed to borrow money in the bond market at lower yields than other financial institutions could. The yield on Fannie Mae and Freddie Mac's corporate debt, known as agency debt , has historically been about 35 basis points higher than U.
Treasury bonds. AAA-rated financial firm debt, by comparison, has historically yielded about 70 basis points more than U. Thirty-five basis points may not seem like much, but it made a huge difference because of the trillions of dollars involved. With a funding advantage over their Wall Street rivals, Fannie Mae and Freddie Mac made sizable profits for more than two decades throughout the s and early s.
Over this time period, there was a frequent debate about Fannie and Freddie among economists, financial market professionals, and government officials.
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