What is Fannie Mae and Freddie Mac? April 28
The Federal National Mortgage Association (FNMA) NYSE: FNM, is commonly known as Fannie Mae and the Federal Home Loan Mortgage Corporation (FHLMC) NYSE: FRE, is commonly known as Freddie Mac.
Fannie Mae and Freddie Mac are the nation’s two largest mortgage finance lenders. The are government sponsored enterprise (GSE) which means that are privately owned corporations and run by shareholders but are financially backed by the government. Fannie Mae was created in 1938 and was a a monopoly for the first thirty plus years. Then in 1968 it became a GSE and to prevent any further monopoly Freddie Mac was created in 1970. Currently Fannie Mae and Freddie Mac control 90 percent of the secondary home mortgage market.
Both companies essentially sell bonds to investors and raise cash to buy mortgages and have a limit on maximum amount of a mortgage that they will purchase. As of 2006 the limit is $417,000. Anything above that limit is known as a jumbo mortgage. One advantage (sometimes also considered unfair) that both these companies have is the federal credit line in case they run into financial trouble. Each company has a credit line limit with the federal government of approximately $2.25 billion dollars. But it is mainly due to these two corporations that the housing market has been able to increase as they make it more accessible for low to moderate income families to buy a house.