Real Estate: Fannie Mae & Freddie Mac

January 21, 2014
Last updated:
September 21, 2021
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Fannie Mae and Freddie Mac have been in the news quite a bit over the past few years, so it’s a good time to do a refresher on who they are and what role they play in the real estate market.

If you’re ready to buy a home and are looking to apply for a mortgage, you may want to learn more about these entities and how they can impact how much your mortgage will cost you.

Who Are Fannie Mae And Freddie Mac?

Fannie Mae is the Federal National Mortgage Association. Freddie Mac is the Federal Home Loan Mortgage Corporation. They were originally created to raise homeownership levels and increase the availability of affordable housing.

Fannie and Freddie don’t sell mortgages directly to homeowners. They buy mortgages from lenders, so the lenders can use the money to issue new home mortgages.

In 2008, due to mismanagement resulting in billions of dollars of losses, Fannie and Freddie were taken over by the government.

How Do Fannie And Freddie Impact Real Estate?

  • They contributed to the financial crisis and real estate downturn, by loosening underwriting standards, buying and guaranteeing risky loans and increasing purchases of mortgage-backed securities.
  • They are key players in the government’s Making Home Affordable foreclosure-prevention program. If your mortgage is owned by Fannie Mae or Freddie Mac, you may be able to refinance your loan and take advantage of lower interest rates.
  • They influence mortgage interest rates and the availability of home loans. Freddie, Fannie and the Federal Housing Administration together now guarantee about 90 percent of all new mortgages, far above their historic level.

How Do Freddie Mac and Fannie Mae Differ?

Mortgage Sources

The main difference between Fannie Mae and Freddie Mac is where they source their mortgages from. While Fannie Mae purchases mortgages from larger banks, Freddie Mac purchases them from smaller financial institutions.

Mortgage Approval Qualifications

All loans backed by these entities are generally conventional loans, which are mortgages that are not backed by the government. Freddie Mac and Fannie Mae have their own guidelines in terms of mortgage approval and qualifying borrowers.

Lending Programs

Fannie Mae and Freddie Mac differ in their lending programs and requirements. For instance, Fannie Mae offers the HomeReady loan, whereby borrowers can’t earn more than 80% of the median income in the area. On the other hand, Freddie Mac offers the Home Possible loan, whereby borrowers can’t earn more than the average income in the area.

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How Are They Similar?


Both Fannie Mae and Freddie Mac compete on the secondary mortgage market and provide liquidity to lenders by buying home loans from lenders, then repackaging them into mortgage-backed securities to sell on the secondary mortgage market.

Subprime Mortgage Crisis

From 2007 to 2010, the subprime mortgage crisis came about as a result of a significant drop in home prices after the bursting of the housing bubble. Many foreclosures and mortgage delinquencies occurred.

The government ended up bailing out both GSEs with approved bailout funds to help get the economy back on track. Since the enterprises assumed this debt, they were in conservatorship with the government. Freddie Mac and Fannie Mae saved the housing market crash, and by 2009, they contributed a significant amount of new mortgages.

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Ready to Apply For a Mortgage in WA, OR, CO, or ID?

Do you have questions about home loans? Are you ready to apply for a mortgage to buy a home? If so, Sammamish Mortgage can help. We are a local mortgage company from Bellevue, Washington, serving the entire state, as well as Oregon, Idaho, and Colorado. We offer many mortgage programs to buyers all over the Pacific Northwest and have been doing so since 1992. Contact us today with any questions you have about mortgages.

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