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What Are The Key Differences Between Fannie Mae and Freddie Mac?
Anyone can explain the major differences between Fannie Mae and Freddie Mac? No matter how much someone explains to me the difference, I get more and more confused.
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Fannie Mae (officially known as the Federal National Mortgage Association) and Freddie Mac (officially known as the Federal Home Loan Mortgage Corporation) are both government-sponsored enterprises (GSEs) in the United States that play a significant role in the mortgage market. While they share similarities, there are some key differences between the two:
Origins and Charters:
Fannie Mae: Originally established in 1938 as a government agency during the Great Depression, Fannie Mae became a private, shareholder-owned company in 1968. Its mission is to provide stability and affordability to the housing market by purchasing and guaranteeing mortgages from lenders.
Freddie Mac: Created in 1970, Freddie Mac is a relatively newer entity. Its purpose is also to support the housing market by purchasing and securitizing mortgages, primarily those for low- and moderate-income families. Freddie Mac was established in response to the need for additional competition and liquidity in the secondary mortgage market.
Ownership Structure:
Fannie Mae: Fannie Mae operates as a publicly traded company, meaning it is owned by private shareholders. However, it was placed into conservatorship by the federal government in 2008 during the financial crisis, and as of my last knowledge update in January 2022, it remains under the control of the Federal Housing Finance Agency (FHFA).
Freddie Mac: Similar to Fannie Mae, Freddie Mac is a publicly traded company with private shareholders. Also, it went into conservatorship in 2008 and is under the supervision of the FHFA.
Operations and Focus:
Fannie Mae: Fannie Mae primarily focuses on the secondary mortgage market by purchasing and guaranteeing conventional mortgages. It works with a broad range of lenders and supports the availability and affordability of mortgage credit for homebuyers.
Freddie Mac: Freddie Mac’s focus is also on the secondary mortgage market, and it purchases and securitizes conventional mortgages. Like Fannie Mae, it plays a role in increasing liquidity and stability in the housing finance system.
Types of Loans Purchased:
Both Fannie Mae and Freddie Mac primarily deal with conventional mortgages, but they have expanded their activities to include certain types of government-backed loans, such as FHA (Federal Housing Administration) and VA (Department of Veterans Affairs) loans.
Regulation and Oversight:
Both GSEs are subject to regulation and oversight by the FHFA, which acts as their conservator since the financial crisis. The FHFA ensures that Fannie Mae and Freddie Mac fulfill their mission while operating in a safe and sound manner.
It’s important to note that the information provided here is based on my knowledge as of January 2022, and there may have been developments or changes in the operations of Fannie Mae and Freddie Mac since then.