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What is the difference between Fannie Mae and Freddie Mac?

Fannie Mae and Freddie Mac are both government-sponsored enterprises (GSEs) created to provide stability and liquidity to the mortgage market, but they have some key differences:

  1. Creation and Purpose:
    • Fannie Mae (Federal National Mortgage Association) was established in 1938 as a government agency but was later privatized in 1968. Its primary purpose is to provide liquidity to the mortgage market by purchasing and securitizing mortgages from lenders.
    • Freddie Mac (Federal Home Loan Mortgage Corporation) was established in 1970 to expand the secondary mortgage market and increase homeownership. Like Fannie Mae, Freddie Mac purchases mortgages from lenders and packages them into mortgage-backed securities (MBS) for sale to investors.
  2. Regulation:
    • Fannie Mae and Freddie Mac are both regulated by the Federal Housing Finance Agency (FHFA), which oversees their operations, ensures their safety and soundness, and sets guidelines for their activities.
  3. Ownership and Structure:
    • Fannie Mae and Freddie Mac have different ownership structures. Fannie Mae is a publicly traded company with shareholders, while Freddie Mac was also publicly traded until it was placed into conservatorship by the U.S. government in 2008 during the financial crisis. Since then, Freddie Mac has been under government control.
  4. Product Focus:
    • While both Fannie Mae and Freddie Mac purchase and securitize a variety of mortgage products, they may have slightly different product focuses or guidelines. For example, they may have different underwriting standards or eligibility criteria for the loans they purchase.
  5. Market Impact:
    • Fannie Mae and Freddie Mac are both significant players in the mortgage market and play a crucial role in providing liquidity and stability. Their actions and policies can have a significant impact on mortgage rates, underwriting standards, and overall market conditions.

Both Fannie Mae and Freddie Mac serve important functions in the mortgage market and have their strengths and weaknesses.