See how these two government-sponsored entities affect home loans.

When reading about home mortgages, eventually you’ll come across two names: Fannie Mae and Freddie Mac. These are two federally-sponsored entities that greatly influence the home mortgage market.

The difference between Fannie Mae and Freddie Mac

Fannie Mae has been around the longest. Formally called the Federal National Mortgage Association, it was created in 1938 to expand access to affordable housing. As part of the New Deal, it helped get much-needed funds to local markets to stabilize housing markets.

Freddie Mac, the younger organization, is the Federal Home Loan Mortgage Corporation. It was chartered in 1979 to provide mortgage backing to a wider pool of lenders.

Neither Fannie Mae nor Freddie Mac originate home loans. Instead they acquire mortgage loans made by banks, credit unions and mortgage companies.

Why Fannie Mae and Freddie Mac matter to homebuyers

Individuals seeking a home loan don’t interact directly with Fannie Mae and Freddie Mac, but these two entities can affect the loan borrowers get. This is because the Fannie Mae and Freddie Mac issue lending criteria for the loans they buy or package and sell as mortgage-backed securities.

When home buyers apply for a home loan, the lender will have certain mortgage requirements. For example, debt-to-income (DTI) ratios must be within a certain range, or down payments may have to meet a minimum threshold. For an affordable home loan program the applicant’s income may not exceed more than 80% of the area’s median income. Often, requirements like these come directly from Fannie Mae and Freddie Mac. Lenders who intend to sell their loans to Fannie or Freddie must keep their underwriting in line with requirements.

Just over two-thirds of mortgages are supported by Fannie Mae and Freddie Mac. This means there is a sizeable number of mortgage products that aren’t required to adhere to the entities’ stringent rules and can offer more flexible terms like no or low down payments. 

Get your mortgage questions answered

If you have any  questions about mortgage loans, reach out to one of our Mortgage Loan Officers (find each officer’s phone and email address on their profile page by clicking on “More info”).

 

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