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Fannie Mae was established first in 1938, followed by Freddie Mac later in 1970. How They Compare: While very similar in function, there are some differences between Fannie Mae and Freddie Mac. Because there are so many loans, the institutions like to buy pools, or collections of loans that have all the same parameters. Rather than holding onto all the loans, Fannie Mae and Freddie Mac can sell them to different institutions, such as City Bank or Wells Fargo. The two GSEs buy thousands of loans every day, but they don’t need to keep them all. Quick Note: You might be wondering what Fannie Mae and Freddie Mac do with the loans they purchase.
Now they can use that money to help another borrower. Instead of taking on the loan, the lender sells it to Fannie Mae or Freddie Mac. They only had $100,000 to give, so now they don’t have any money to help other borrowers. The lender is now out $100,000 and will have to wait 30 years before being fully paid back. Here is an example of how this process works: A lender has provided a borrower with a 30-year, $100,000 loan to purchase a home. Buying the loans allows lenders to have their money returned right away and lets them engage in further lending to more borrowers. However, GSEs like Fannie Mae and Freddie Mac can make the 30-year commitment. If they did, they could only help a few borrowers before running out of money. Most loans have a lifespan of around 30 years, but lenders are unable to wait out the lifespan before getting their money back. Lenders provide borrowers with loans for a home purchase or refinance, but they want to be able to do so for as many borrowers as possible. This is done primarily through the purchase of loans from lenders. Their main function is to assist lenders by providing liquidity, or access to funds. What They Do: Fannie Mae and Freddie Mac are government-sponsored enterprises, more commonly known as GSEs. Fannie Mae represents the Federal National Mortgage Association (FNMA), and Freddie Mac the Federal Home Loan Mortgage Corporation (FHLMC). Who They Are: The names Fannie Mae and Freddie Mac are actually creative acronyms for their respective organizations.
Here’s a quick rundown of what they are and what they do. We believe it is important for you to understand their roles in the industry and how they function. While the names might be familiar, there’s much to learn about the two biggest players in the housing market. If you have a mortgage or are going through the homebuying process, you’ve probably heard of Fannie Mae and Freddie Mac.