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The Role of Fannie Mae and Freddie Mac in the Mortgage Market

Fannie Mae and Freddie Mac, two government-sponsored enterprises (GSEs), play a vital role in the U.S. mortgage market by providing liquidity. They ensure a steady flow of funds to banks and mortgage companies, supporting housing loans. Though they operate similarly, there are key differences between them.

Fannie Mae Overview

Fannie Mae, or the Federal National Mortgage Association, was created in 1938 during the New Deal to boost homeownership and affordable housing. Initially a government agency, it became a shareholder-owned company in 1968. Fannie Mae buys mortgages from larger commercial banks and credit unions, repackages them into mortgage-backed securities, and sells them to investors.

Freddie Mac Overview

Freddie Mac, or the Federal Home Loan Mortgage Corporation, was established in 1970 to compete with Fannie Mae and support smaller banks. Like Fannie Mae, it buys bundled mortgages and sells them as securities. Freddie Mac focuses on purchasing loans from smaller banks and mortgage originators, thereby aiding in reducing interest rate risks for these lenders.

Differences Between Fannie Mae and Freddie Mac

  • Mortgage Sources: Fannie Mae buys from larger institutions, while Freddie Mac focuses on smaller banks.
  • Purpose: Fannie Mae aims to enhance accessibility to housing finance, whereas Freddie Mac was created to expand the secondary mortgage market.

Loan Programs

Both GSEs offer various loan programs designed to assist different types of borrowers:

  • Fannie Mae HomeReady: Offers a 3% down payment, targeting those earning less than 80% of the area’s median income.
  • Fannie Mae HomeStyle: Provides a 5% down payment with no specific income requirements.
  • Freddie Mac Home Possible: Requires a 3% down payment for those earning less than 80% of the area’s median income.
  • Freddie Mac HomeOne: Available for first-time buyers with a 3% down payment and no income limits.

How They Work

Fannie Mae and Freddie Mac buy home mortgages from lenders and either keep them in their portfolios or sell them as mortgage-backed securities. This process helps expand the availability of housing funds and makes homeownership more affordable.


Fannie Mae and Freddie Mac are crucial to the stability and liquidity of the U.S. housing market. Understanding their roles and differences can help prospective homebuyers navigate the mortgage process effectively. Contact a mortgage professional to learn more about how these programs can benefit you.

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