What is the difference between Fannie Mae and Freddie Mac?

If you’ve started exploring home loans, you may have heard of Fannie Mae and Freddie Mac. Their names sound friendly and familiar, but many first-time homebuyers aren’t sure what these organizations actually do, or why they matter when you’re applying for a mortgage through your credit union. Let’s explore how Fannie Mae and Freddie Mac affect the loans that credit unions and other lenders offer.

Who Are Fannie Mae and Freddie Mac?

Fannie Mae (Federal National Mortgage Association) and Freddie Mac (Federal Home Loan Mortgage Corporation) are both government-sponsored enterprises (GSEs). They aren’t direct government agencies; Congress created them to support the U.S. housing market.

Their main job is to buy mortgages from local lenders (like credit unions and banks). After buying these loans, they combine them into mortgage-backed securities (MBS) to sell to investors. This process: 

• Gives lenders more cash to issue new home loans
• Keeps mortgage interest rates more stable nationwide
• Helps make homeownership more accessible for everyday families

You won’t apply directly to Fannie Mae or Freddie Mac for a mortgage. Instead, you apply through a credit union or bank. Those lenders follow guidelines set by Fannie or Freddie so the loan can be held by them later.

Fannie Mae and Freddie Mac are regulated by the Federal Housing Finance Agency (FHFA), which sets guidelines for their activities and oversees their operations.

How Are Fannie Mae and Freddie Mac Different?

While Fannie Mae and Freddie Mac both keep mortgage money flowing, they focus on different sources of loans and have slightly different rules.

Fannie Mae 

Fannie Mae was established in 1938 as a government agency, but was later privatized in 1968. The agency:

• Works primarily with big banks and larger retail lenders. Your credit union may sell some of its loans to Fannie Mae if it partners with larger institutions.
• Covers standard conventional loans. Fannie Mae is best known for conventional fixed-rate mortgages, including the popular 30-year fixed loan.
• Offers the HomeReady® Program. Provides low down-payment options (as little as 3%) for creditworthy borrowers with moderate incomes.

Freddie Mac

Freddie Mac was established in 1970 to increase homeownership and expand the mortgage market. This agency:

• Works more with smaller banks and community lenders. This is important because many credit unions and local mortgage companies fit this profile.
• Offers the Home Possible® Program. Also allows down payments as low as 3%, but often has slightly more flexible income requirements or options for co-borrowers.
• Focuses on access. Freddie Mac was created in part to increase competition and provide more mortgage choices to local financial institutions.

Types of Loans They Oversee

Both Fannie Mae and Freddie Mac primarily handle conventional conforming loans. A conforming loan simply means it meets the standards they set for:

• Loan limits (the maximum amount buyers can borrow, which adjusts yearly and varies by county)
• Credit scores and debt-to-income ratios
• Down payment requirements

Examples include:

• Fixed-rate mortgages (15- or 30-year terms)
• Adjustable-rate mortgages (ARMs) that meet conforming guidelines
• Special low-down-payment programs like Fannie Mae’s HomeReady and Freddie Mac’s Home Possible

They do not directly handle FHA, VA, or USDA loans, those are backed by other federal programs.

How Your Credit Union Fits In

When you apply for a mortgage with your credit union, the loan officer will review your finances and help you choose the right product. Behind the scenes, the credit union may decide to sell the loan to either Fannie Mae or Freddie Mac.

This doesn’t change your experience, you’ll continue making payments to your credit union or the assigned servicer, but it allows your credit union to free up funds to help other members buy homes too.

Fannie Mae and Freddie Mac are vital for:

• Competitive Rates. Because your credit union can sell qualifying mortgages to Fannie or Freddie, it gets money back to lend to other members. This steady flow of funds helps keep mortgage rates lower and more stable.
• Flexible Programs. Fannie Mae and Freddie Mac each offer special programs that can make it easier to qualify, especially for first-time buyers. For example, their 3% down-payment options often cost less upfront than traditional 20% down loans.
• Clear Standards. Loans that meet Fannie or Freddie guidelines are considered “conforming,” which gives lenders and borrowers confidence in the process. You’ll know exactly what credit score, income level, and debt ratio you need to qualify.
• Easier Refinancing. In the future, if interest rates drop, Fannie and Freddie loans often have straightforward mortgage refinance options, helping homeowners save money over time.

Let’s Explore Your Mortgage Options

Whether your mortgage ends up with Fannie Mae or Freddie Mac, both organizations exist to make homeownership more affordable and accessible for our members. Contact People Driven Credit Union today to talk more about home financing options with our loan team!