Get to Know Fannie Mae and Freddie Mac

I’m sure you’ve heard about the names “Fannie Mae” and “Freddie Mac” when talking about buying a home through a mortgage. And while they’re not real people, you might be wondering how they can help in your homeownership journey.

Let’s talk about them and see what they can do for you.

Who are Fannie Mae and Freddie Mac?

First, let’s get to know who they are and where their nicknames came from.

The Federal National Mortgage Association and Federal Home Loan Mortgage Corporation are two government-sponsored entities or GSEs established by the US Congress and under the Federal Housing Finance Agency or FHFA. Both got their nicknames from the initials of their full names: FNMA for Fannie Mae and FMCC for Freddie Mac.

How They Function

Their main function is to help make the housing market more affordable and stable for potential homeowners. They do so by providing access to funds and guarantees from financial institutions within the US. Typically, they purchase housing loans from mortgage lenders and repackage them into mortgage-backed securities which are sold to investors on the secondary housing market.

Additionally, they set the base framework that lenders around the country follow in selling their home acquisition offerings. This helps maintain competition in the industry while enticing investors and opening the door for more funding for homebuyers.

Differences and Similarities Between Fannie Mae and Freddie Mac

While these entities share the same goal, they also differ in certain factors.

Purpose

Fannie Mae was originally established during the late 1930s as an answer to the housing situation at the time. Although it started as a government-owned entity, it was privatized in 1968, allowing investors to buy stocks and fund the project.

On the other hand, Freddie Mac was created by Congress in 1970 as its new government-owned housing support entity. And compared to Fannie Mae, this provides credit unions and smaller lenders an opportunity to enter the market.

Sourcing

Another key difference between them is the source of a mortgage they offer homebuyers. Fannie Mae sources from large commercial institutions for mortgage opportunities, while Freddie Mac taps on credit unions and community banks for mortgage options.

Requirements

Application requirements for both entities are generally the same, they may have slight differences in the process and qualification levels.

As for downpayment requirements, they usually ask for low downpayment from borrowers.

More Housing Opportunities with Fannie Mae and Freddie Mac

Thanks to government-backed entities like Fannie Mae and Freddie Mac, the housing market is as vibrant and open today. They provide homebuyers with more options to secure the dream of homeownership through affordable means.

Looking for other options as you pursue the dream of homeownership? Explore Islamic Financing home acquisition programs that ijaraCDC has to help bridge homebuyers with their new homes.