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Fannie Mae and Freddie Mac: Why they matter to homebuyers

On Behalf of | Nov 23, 2018 | Firm News, Real Estate Transactions

You have likely heard the names Fannie Mae and Freddie Mac, but have you ever wondered how they apply to you?

Fannie Mae and Freddie Mac are two private mortgage companies established by the federal government. They operate as “secondary mortgage lenders” by backing and buying loans from private lenders. Most notably, the establishment of Fannie Mae and Freddie Mac allowed for the 30-year fixed home loans in the United States, because private home mortgage lenders no longer had to rely on private funding.

The two government sponsored mortgage companies share several similarities, as well as differences. Fannie Mae is formally known as the Federal National Mortgage Association. It was established in 1938 under the New Deal, in order to boost the housing market in the United States. Fannie Mae purchases mortgage loans from large commercial banks.

The Federal Home Loan Mortgage Corporation, or Freddie Mac, began in 1970 to provide homebuyers more access to mortgage loans. Unlike Fannie Mae, Freddie Mac commonly buys mortgage loans from smaller banks or credit unions.

Fannie Mae and Freddie Mac turn these loans into mortgage-backed securities (MBS) that they sell to investors like shares of stock. However, they are responsible for paying the investors back if a homebuyer defaults on a mortgage loan. This process allows Fannie May and Freddie Mac to set regulations and provide homebuyers more accessibility to mortgage loans.

While Fannie Mae and Freddie Mac help set lower rates for people to purchase homes, homebuyers can still struggle to make their mortgage payments. If a homebuyer borrows with Fannie Mae or Freddie Mac loans and is facing foreclosure, he or she may have access to loan modification programs. If you are facing foreclosure or another real-estate related matter, consider speaking to a real estate attorney to discuss foreclosure alternatives available to you.