logo
(303) 256-5748
  • Home
  • Home Purchase
  • Refinance
  • Apply
  • Resources
    • Loan Programs
    • Loan Process
    • Mortgage Basics
    • Mortgage Calculators
    • Online Forms
  • About
    • Ask the Expert
    • Newspaper Articles By Spierings
    • Rent vs. Buy
    • Testimonials
  • FAQ
  • VA Loans
  • Reverse
  • Contact

What Do Fannie Mae And Freddie Mac Actually Do?

Fannie Mae and Freddie Mac are government-backed mortgage companies (or government-sponsored enterprise), and their job is to give the mortgage market stability and affordability. But how exactly do they do that, and why does it matter to you as a homebuyer? 

In this article, you'll learn how the two companies operate and how they impact the mortgage market. 

Fannie Mae And Freddie Mac: Brief History

Fannie Mae was established in 1938 through the Federal Home Loan Bank Act. Led by President Franklin D. Roosevelt, the vision was to create an avenue that helped Americans realize their homeownership dream. Initially, Fannie Mae was a government agency. However, Congress turned Fannie Mae into a company in 1968 to divert government funding away from Fannie Mae and into the Vietnam war. 

While Fannie Mae sells stocks to shareholders as an initial public offering (IPO), it's also considered a government-sponsored enterprise (GSE). 

Freddie Mac came about in 1970. Like Fannie Mae, Freddie Mac is a GSE that purchases mortgages. Buying mortgages helps by allowing banks to have more free capital to finance borrowers. 

Fannie Mae And Freddie Mac: Their Role In Mortgage Markets

Now that we've established that Fannie Mae and Freddie Mac purchase mortgages from banks to free up bank funds --what comes next? What they do is repackage those mortgages into their portfolios (mortgage-backed securities) to sell to investors on the secondary mortgage market. 

Fannie Mae and Freddie Mac lure investors to invest in mortgage-backed securities by guaranteeing payments on those mortgages. The result is more housing funds available and lower interest rates. 

And in times of economic hardships (like from a pandemic, for example), Fannie Mae and Freddie Mac help stabilize the mortgage market.

How Fannie Mae And Freddie Mac Help Low-Income Homeownership

Both GSEs have mortgage programs to assist low-to-moderate income borrowers as well as assistance to first-time home buyers.

Without their specialty programs, many potential homebuyers would not be able to qualify for a home loan. However, since the loans are government-backed, banks can widen their requirements, offering more people opportunities. 

Freddie Mac And Fannie Mae: How They Work In Times Of Crisis

The interesting thing is that Fannie Mae and Freddie Mac have played a significant role in both causing crisis and rescuing us from a crisis. Here are some recent examples. 

Subprime Mortgage Crisis 

Fannie Mae and Freddie Mac issued about $300 billion worth of subprime mortgages in 2007. While these loans were considered a higher risk, they also brought a higher return. These higher returns helped to uphold higher stock prices, and in an extremely competitive market, this notion is attractive. 

However, by summer 2007, many borrowers began defaulting on their mortgage payments. Since Fannie Mae and Freddie Mac were backing the loans, the risk fell on the two companies, and the result was a massive loss of about $8.7 billion. This loss caused their stocks to plummet and investor confidence to falter.

In an attempt to sustain the mortgage market, Congress approved Fannie Mae and Freddie Mac to back more subprime loans. But that only dug the companies even further into a hole. As the crisis continued, our government stepped in and bailed out both companies and authorized the purchase of $100 billion in mortgage-backed securities. 

Fannie And Freddie: COVID-19 Response

Many homeowners struggled (and continue to struggle) to make their mortgage payments during the global pandemic. Under the CARES Act, the government provided financial relief to homeowners whose loans were federal or GSE-backed. 

One protection was a foreclosure provision that didn't allow a lender to start foreclosure proceedings until after December 31, 2020. The second allowed homeowners to request forbearance up to 180 days if financial hardships were due to COVID-19. 

Although things have changed throughout the years, FDR's original vision of making the American dream of homeownership more widely available continues. Contact us now to get matched with a Fannie Mae or Freddie Mac loan program.

Disclaimer

PRMI NMLS 3094. Branch NMLS 1192790. PRMI is an Equal Housing Lender. Some products and services may not be available in all states. Credit and collateral are subject to approval. Terms and conditions apply. Programs, rates, terms, and conditions are Licensed by the Department of Business Oversight under the California Residential Mortgage Lending Act 4130403. A copy of our Privacy Policy and Notice is accessible by clicking on the “Privacy Policy" link located at the bottom of the page. Regulated by the Division of Real Estate. Department of Financial Institutions 109282

Terms of Use | Privacy Policy | Site Map | Consumer Voice

Sample Image

Connect

Contact Us

Address: 9800 Mt. Pyramid Court Suite 370 Englewood, Colorado 80112

Phone: (303) 256-5748

Fax: (303) 380-3350

Email: rspierings@primeres.com

NMLS# 217152

LenderHomePage Footer Logo Powered By LenderHomePage.com

Primary Residential Mortgage, Inc. Accessibility Statement

General

Primary Residential Mortgage, Inc. strives to ensure that its services are accessible to people with disabilities. Primary Residential Mortgage, Inc. has invested a significant amount of resources to help ensure that its website is made easier to use and more accessible for people with disabilities, with the strong belief that every person has the right to live with dignity, equality, comfort and independence.

Accessibility on Primary Residential Mortgage, Inc. website

Primary Residential Mortgage, Inc. makes available the UserWay Website Accessibility Widget that is powered by a dedicated accessibility server. The software allows Www.bestcoloradomortgages.com to improve its compliance with the Web Content Accessibility Guidelines (WCAG 2.1).

Enabling the Accessibility Menu

Primary Residential Mortgage, Inc. accessibility menu can be enabled by clicking the accessibility menu icon that appears on the corner on the page. After triggering the accessibility menu, please wait a moment for the accessibility menu to load in its entirety.

Disclaimer

Primary Residential Mortgage, Inc. continues its efforts to constantly improve the accessibility of its site and services in the belief that it is our collective moral obligation to allow seamless, accessible and unhindered use also for those of us with disabilities.

Despite our efforts to make all pages and content on Primary Residential Mortgage, Inc. website fully accessible, some content may not have yet been fully adapted to the strictest accessibility standards. This may be a result of not having found or identified the most appropriate technological solution.

Here For You

If you are experiencing difficulty with any content on Primary Residential Mortgage, Inc. website or require assistance with any part of our site, please contact us during normal business hours as detailed below and we will be happy to assist.

Contact Us

If you wish to report an accessibility issue, have any questions or need assistance, please contact us by sending an email to: rspierings@primeres.com