What Is Fannie Mae or Freddie Mac?

Fannie Mae and Freddie Mac are government-sponsored enterprises that buy mortgage loans from banks and other lenders.

By , Attorney University of Denver Sturm College of Law
Updated 1/29/2024

You've probably heard of Fannie Mae and Freddie Mac, but what do they do? The Federal National Mortgage Association ("Fannie Mae") and the Federal Home Loan Mortgage Corporation ("Freddie Mac") are often called "government-sponsored enterprises" (GSEs).

These GSEs are privately owned, but they get support from the federal government. Fannie Mae and Freddie Mac play a significant role in the mortgage market by owning or guaranteeing many home loans in the United States.

And if you have a Fannie Mae or Freddie Mac loan and you're facing a foreclosure, you get access to specific mortgage-relief programs and foreclosure avoidance options.

Fannie Mae and Freddie Mac

Fannie Mae and Freddie Mac are nicknames for the GSEs, derived from their full names. Fannie Mae comes from Federal National Mortgage Association (FNMA) and Freddie Mac from Federal Home Loan Mortgage Corporation (FHLMC).

What Do Fannie Mae and Freddie Mac Do?

Fannie Mae and Freddie Mac provide stable funding for the housing and mortgage markets, but they don't make loans directly to home buyers. They also don't service mortgage loans.

Instead, the GSEs support the nation's housing finance system by purchasing or guaranteeing home mortgages through the secondary mortgage market. Fannie Mae and Freddie Mac compete with each other as investors on the secondary mortgage market.

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

One difference between Fannie Mae and Freddie Mac is their original purpose. Congress created Fannie Mae in 1938 to provide affordable housing after the Great Depression. Banks didn't have the funds to make mortgage loans, so Fannie Mae helped banks finance long-term, fixed-rate mortgages.

In 1968, the government privatized Fannie Mae. In 1970, Congress created Freddie Mac to compete with Fannie Mae's monopoly and further expand the secondary mortgage market.

Other Differences Between Fannie Mae and Freddie Mac

Some other differences are that Fannie Mae and Freddie Mac have different loan programs and lending guidelines for borrowers. They also have various options for borrowers having trouble making their mortgage payments. Though, their loss mitigation options tend to be similar.

Also, Fannie Mae and Freddie Mac buy mortgages from different sources. Fannie Mae purchases loans from larger, commercial banks and lenders. Freddie Mac gets them from smaller banks and lenders.

What Are the Similarities Between Freddie Mac and Fannie Mae?

Fannie Mae and Freddie Mac are similar in that they support the mortgage in the U.S. by purchasing mortgage loans from lenders that originate them.

And the Federal Housing Finance Agency (FHFA) regulates both Fannie Mae and Freddie Mac.

How Do Fannie Mae and Freddie Mac Support the Mortgage Market in the U.S.?

After purchasing loans from banks and mortgage companies, the GSEs either hold the mortgages in their portfolios or aggregate (pool) them into debt securities called mortgage-backed securities, which are then sold to investors. This process is called "securitization."

Fannie Mae and Freddie Mac often guarantee payment of principal and interest on their mortgage-backed securities in exchange for a fee to reduce the investors' risk. By guaranteeing the loan, the GSEs agree to pay the investor even if the borrower defaults.

So, investors don't have to worry about credit risk, making Fannie-backed and Freddie-backed mortgages a particularly appealing investment. Also, because of their major role in the mortgage market and their affiliation with the government, investors generally assume the government implicitly guarantees Fannie Mae and Freddie Mac loans (meaning, the government will bail out Fannie Mae and Freddie Mac if necessary.)

In fact, when the mortgage crisis began in 2007, Fannie Mae and Freddie Mac faced major losses. And because they had such a large share of owned and guaranteed loans in the country, the FHFA determined that the GSEs would soon become insolvent. So, in 2008, the FHFA put Fannie Mae and Freddie Mac into conservatorship. Fannie Mae and Freddie Mac received a bailout of nearly $190 billion from the government, which they've paid back. But they're still in conservatorship.

Why Do Mortgage Lenders Like Fannie Mae and Freddie Mac?

Because Fannie Mae and Freddie Mac continually purchase mortgages from banks and mortgage companies, lenders have a steady cash source to keep making loans to new borrowers. Lenders are also incentivized to offer non-risky loan products, like long-term, fixed-rate mortgages, because they know Fannie Mae and Freddie Mac will probably buy them.

Loan Modifications and Other Foreclosure Workout Options

If you have a Fannie Mae or Freddie Mac loan, are having trouble paying your mortgage, or are facing a foreclosure, various workout options are potentially available.

One possibility is a Flex Modification, a unique loan modification program for borrowers with GSE-owned loans. The Flex Modification program generally lowers an eligible borrower's mortgage payment by around 20%. If you previously received a COVID-19 forbearance, you can access different repayment options, like Flex modifications and other kinds of modifications, when the forbearance expires.

Another option for borrowers facing financial hardship is a six-month payment deferral. On March 29, 2023, the Federal Housing Finance Agency (FHFA), which oversees Fannie Mae and Freddie Mac, announced that the payment deferral policies established during the COVID-19 pandemic would continue to be available for borrowers, subject to some adjustments.

With a payment deferral option, borrowers keep the same monthly mortgage payment and move the past-due amounts to the end of the loan as a non-interest bearing balance, which becomes due and payable at maturity, sale, refinance, or payoff. To qualify, you must have resolved a temporary hardship and resumed your monthly contractual payments but can't afford either a reinstatement or repayment plan to bring the mortgage loan current. A regular payment deferral option is available if the mortgage loan is a couple of months overdue. A disaster payment deferral option helps borrowers with a disaster-related hardship return their mortgage to a current status after up to 12 months of missed payments.

How Do Fannie Mae and Freddie Mac Encourage Low-Income Homeownership?

Fannie Mae and Freddie Mac offer mortgage loans for borrowers who earn lower or moderate incomes.

For example, Fannie Mae has the HomeReady mortgage. It also lists homes it has acquired through foreclosure or deeds in lieu of foreclosure and offers them online for sale at a discount at www.HomePath.FannieMae.com. Freddie Mac has the Home Possible mortgage and HomeSteps.com for finding properties.

How Are Fannie Mae and Freddie Mac Doing Today?

While Freddie Mac and Fannie Mae are shareholder-owned, they've both been under government conservatorship since the Great Recession.

Currently, Fannie Mae and Freddie Mac own or back most of the mortgage loans in the United States, which probably isn't sustainable for the long run, given the financial risk to the government. Private investors will probably have to start assuming more risk in the secondary mortgage market at some point.

Learn More

Go to Fannie Mae's Know Your Options website to learn more about Flex Modifications and other workout options for borrowers with Fannie Mae loans. To find out if Fannie Mae owns your mortgage loan, go to https://www.knowyouroptions.com/loanlookup or call 800-2Fannie (800-232-6643).

For more information about Freddie Mac and how it works, go to the Freddie Mac website. To find out if Freddie Mac owns your mortgage loan, use Freddie Mac's Loan Lookup tool.

If you're behind in your mortgage payments (or think you soon will be) and want to learn about different ways to avoid a foreclosure, consider contacting a HUD-approved housing counselor. A housing counselor can help you understand the specific options available to you, whether Fannie Mae, Freddie Mac, or another entity owns your home loan.

You can also call your loan servicer to learn about different options to avoid foreclosure. If you want to learn about foreclosure procedures in your state, including how long the process takes, talk to a foreclosure lawyer.

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