Officially named the Federal National Mortgage Association (FNMA) and the Federal Home Loan Mortgage Corporation (FHLMC), everyone just calls them Fannie Mae and Freddie Mac for short. They may sound like your favorite Aunt and Uncle, but they’re actually government institutions that help keep the mortgage market stable and affordable!
While Fannie and Freddie slightly differ, they both provide ready-access funds with reasonable terms to banks and mortgage companies across the country. Fannie Mae buys mortgages from larger commercial banks, while Freddie Mac buys them from much smaller banks. Both help banks originate more loans and keep interest rates low! Neither Fannie Mae or Freddie Mac originate or service home loans. Instead, they buy and guarantee mortgages through the secondary mortgage market.
But wait, what is the secondary mortgage market?
The secondary mortgage market is where loans are bought and sold between lenders and investors! When you take out a home loan, it is underwritten, funded and serviced by a financial institution like a bank or a mortgage company. These financial institutions use their own funds to make the loan, but then often turn around and sell them to the secondary mortgage market to mitigate the risk of running out of capital. Selling their loans in the secondary market allows them to replenish their available funds and continue to offer home financing to other customers.
For decades, Fannie Mae and Freddie Mac have played an important role in our nation’s home financing system by keeping it stable—allowing financial institutions the ability to originate more mortgages for homebuyers like you!
