Fannie Mae and Freddie Mac have been in the news recently, so it’s a good time to do a refresher on who they are and what role they play.
Who Are Fannie Mae And Freddie Mac?
Fannie Mae is the Federal National Mortgage Association. FNMA is a federally chartered enterprise owned by private stockholders that purchase residential mortgages and converts them into securities for sale to investors. Freddie Mac is the Federal Home Loan Mortgage Corporation. The FHLA, also federally-chartered, is a corporation that purchases residential mortgages, securitizes them, and sells them to investors; this provides lenders with funds for new homebuyers. They were originally created to raise homeownership levels and increase the availability of affordable housing.
Fannie and Freddie don’t sell mortgages directly to homeowners. They buy mortgages from lenders, so the lenders can use the money to issue new home mortgages.
In 2008, due to mismanagement resulting in billions of dollars of losses, Fannie and Freddie were taken over by the government.
How Do Fannie And Freddie Impact Real Estate?
- They contributed to the financial crisis and real estate downturn, by loosening underwriting standards, buying and guaranteeing risky loans and increasing purchases of mortgage-backed securities.
- They are key players in the government’s Making Home Affordable foreclosure-prevention program. If your mortgage is owned by Fannie Mae or Freddie Mac, you may be able to refinance your loan and take advantage of lower interest rates.
- They influence mortgage interest rates and the availability of home loans. Freddie, Fannie and the Federal Housing Administration together now guarantee about 90 percent of all new mortgages, far above their historic level.
What’s Going To Happen To Fannie And Freddie?
Fannie and Freddie’s future is uncertain. An amendment to the bailout legislation passed in 2012 which will require both to wind down by 2018. But this will not happen soon, if at all. Congress must agree on a plan, which could take years, and then the market’s dependence on the companies and the financial backing they provide must be reduced.
As of the end of 2013, Fannie and Freddie will have repaid nearly all of the $187 billion dollar bailout loan back to taxpayers. In 2013, Fannie and Freddie made more than $100 billion and are involved in more than half of all new mortgages.