What Are Fannie Mae and Freddie Mac?

Understanding The Nation's Lending System

The Fannie Mae headquarters is seen July 10, 2008 in Washington, DC.
Mark Wilson/Getty Images News/Getty Images

The Federal National Mortgage Association and the Federal Home Mortgage Corporation (Freddie Mac) were chartered by Congress to create a secondary market for residential mortgage loans. They are considered "government-sponsored" because Congress authorized their creation and established their public purposes.

Together, Fannie Mae and Freddie Mac are largest source of housing finance in the United States.

Here's how it works:

  • You secure a mortgage to buy a home.
  • Your lender probably resold that mortgage to Fannie Mae or Freddie Mac.
  • Fannie Mae and Freddie Mac either hold these mortgages in their portfolios or package the loans into mortgage-backed securities (MBS) that they then sell to the public.

The theory is that by providing this service, Fannie Mae and Freddie Mac attract investors who might not otherwise invest funds in the mortgage market. This, theoretically, increases the pool of money available to potential homeowners.

Third quarter 2007, Fannie Mae and Freddie Mac held mortgages valued at $4.7 billion -- about the size of the total publicly-held debt of the U.S. Treasury. By July 2008, their portfolio was called a $5 trillion mess.

History of Fannie Mae and Freddie Mac

Even though Fannie Mae and Freddie Mac were Congressionally-chartered, they are also private, shareholder-owned corporations.

They have been regulated by the US Department of Housing and Urban Development since 1968 and 1989, respectively.

However, Fannie Mae is more than 40 years old. President Franklin Delano Roosevelt's New Deal created Fannie Mae in 1938 to help jump start the national housing market after the Great Depression.

And Freddie Mac was born in 1970.

In 2007, EconoBrowser noted that today there is "no explicit government guarantee of their debt." In September 2008, the US government seized both Fannie Mae and Freddie Mac.

Other GSEs

  • Federal Farm Credit Banks (1916)
  • Federal Home Loan Banks (1932)
  • Government National Mortgage Association (Ginnie Mae) (1968)
  • Federal Agricultural Mortgage Corporation (Farmer Mac) (1988)

Contemporary Congressional Action Regarding Fannie Mae and Freddie Mac

In 2007, the House passed H.R. 1427, a GSE regulatory reform package. Then-Comptroller General David Walker stated in Senate testimony that “[A] single housing GSE regulator could be more independent, objective, efficient and effective than separate regulatory bodies and could be more prominent than either one alone. We believe that valuable synergies could be achieved and expertise in evaluating GSE risk management could be shared more easily within one agency.”