Fannie Mae vs. Freddie Mac

Attribute	Fannie Mae	Freddie Mac
Established	1938	1970
Type	Government-sponsored enterprise (GSE)	Government-sponsored enterprise (GSE)
Primary Function	Providing liquidity to the mortgage market	Providing liquidity to the mortgage market
Ownership	Publicly traded	Publicly traded
Regulator	Federal Housing Finance Agency (FHFA)	Federal Housing Finance Agency (FHFA)
Government Support	Implicit government guarantee	Implicit government guarantee
Loan Types	Primarily conventional loans	Primarily conventional loans
Market Share	Approximately 40%	Approximately 30%
Financial Stability	Received government bailout during the 2008 financial crisis	Received government bailout during the 2008 financial crisis

Introduction

Fannie Mae and Freddie Mac are two government-sponsored enterprises (GSEs) that play a significant role in the United States housing market. Both entities were established to provide stability and liquidity to the mortgage market, but they have distinct differences in their operations and functions.

Background

Fannie Mae, officially known as the Federal National Mortgage Association, was created in 1938 during the Great Depression. Its primary purpose was to expand the secondary mortgage market by purchasing mortgages from lenders and providing them with funds to originate new loans. On the other hand, Freddie Mac, or the Federal Home Loan Mortgage Corporation, was established in 1970 to compete with Fannie Mae and increase the availability of mortgage credit.

Ownership and Structure

One of the key differences between Fannie Mae and Freddie Mac lies in their ownership and structure. Fannie Mae is a publicly traded company, meaning its shares are available for purchase on the stock market. In contrast, Freddie Mac is also a publicly traded company, but it operates as a government-controlled corporation. The U.S. government holds conservatorship over both GSEs since the 2008 financial crisis.

Operations

While both Fannie Mae and Freddie Mac operate in the secondary mortgage market, they have different focuses. Fannie Mae primarily purchases conventional mortgages, which are loans that meet specific criteria set by the GSE. These mortgages are typically conforming loans, meaning they adhere to loan limits and underwriting guidelines established by Fannie Mae. On the other hand, Freddie Mac purchases both conventional and non-conventional mortgages, including those backed by the Federal Housing Administration (FHA) and the Department of Veterans Affairs (VA).

Loan Limits

Another distinction between Fannie Mae and Freddie Mac is their loan limits. Fannie Mae sets loan limits annually based on the Federal Housing Finance Agency's (FHFA) calculations. These limits vary by county and are adjusted to reflect changes in housing prices. Freddie Mac also sets loan limits, but they are generally aligned with Fannie Mae's limits. However, there may be slight differences in certain high-cost areas.

Securitization

Both Fannie Mae and Freddie Mac securitize the mortgages they purchase, but they have different approaches. Fannie Mae pools the mortgages it acquires and issues mortgage-backed securities (MBS) to investors. These MBS are guaranteed by Fannie Mae, which means investors receive principal and interest payments even if borrowers default on their loans. Freddie Mac follows a similar process, securitizing mortgages into MBS, but it also issues its own debt securities known as Freddie Mac Participation Certificates (PCs).

Regulation and Oversight

As government-sponsored enterprises, Fannie Mae and Freddie Mac are subject to regulation and oversight by various entities. The FHFA is the primary regulator responsible for overseeing their safety and soundness, ensuring they fulfill their mission, and setting certain requirements. Additionally, the U.S. Department of Housing and Urban Development (HUD) and the U.S. Treasury Department also play roles in overseeing the GSEs' activities.

Financial Performance

Examining the financial performance of Fannie Mae and Freddie Mac reveals some similarities and differences. Both GSEs generate revenue primarily from the interest earned on the mortgages they hold or securitize. However, Fannie Mae tends to have a larger market share and higher net income compared to Freddie Mac. This difference can be attributed to various factors, including the types of mortgages they purchase and the pricing of their guarantee fees.

Government Support

Since the 2008 financial crisis, Fannie Mae and Freddie Mac have relied on significant government support. The U.S. government placed both GSEs into conservatorship to prevent their collapse and stabilize the housing market. Under conservatorship, the government provides financial assistance and capital to ensure the GSEs' continued operations. However, there have been ongoing discussions and debates about the future of Fannie Mae and Freddie Mac, including potential reforms and the possibility of ending their conservatorship.

Conclusion

In conclusion, Fannie Mae and Freddie Mac are two government-sponsored enterprises that share the common goal of providing stability and liquidity to the mortgage market. While they have similarities in their operations and functions, such as securitizing mortgages and being subject to government oversight, there are also notable differences in their ownership, loan focus, and financial performance. Understanding these attributes is crucial for comprehending the role and impact of Fannie Mae and Freddie Mac in the U.S. housing market.