Freddie Mac, Fannie Mae, Ginnie Mae — are these people, candy stores, or sandwich orders? They’re actually all government mortgage corporations. In fact, they’re kind of like mortgage corporations for mortgage companies and banks. They make up the fabric of our day-to-day life, yet remain vague or completely unknown to most homeowners.
The 3 Mortgage Companies
|Freddie Mac||Fannie Mae||Ginnie Mae|
|Established in 1970||Established in 1938||Established in 1968|
|Federal Home Loan Mortgage Corporation (FHLMC)||Federal National Mortgage Association (FNMA)||Government National Mortgage Association (GNMA)|
|Government program that buys mortgages from small banks||Government program that buys mortgages from commercial banks||Government program that buys nonconventional loans|
When you’re ready to buy a home, you take a mortgage out from the bank. Freddie Mac gives banks the opportunity to create 30-year mortgages. But those same banks would struggle if they had to directly manage every single 30-year loan, for 30 years.
For example, let’s pretend we live in a fictional town called Littlesville:
- The number one job supplier in Littlesville is a factory.
- One day, the factory closes.
- Nearly everyone in the town is suddenly out of a job.
- People are missing mortgage payments.
- The local bank is about to tank.
With Freddie Mac, the bank wouldn’t sink in this scenario. The bank will sell their mortgages to Freddie Mac, and then those mortgages get mixed in with other mortgages from all over the country. It’s almost like a group project — when one person falls behind, the other group members pick up the slack.
As The Balance explains, “Freddie resells the [mortgage-backed securities\ to investors on the secondary market. That allows more investors to profit from the real estate sector. Freddie uses the proceeds to buy more bank mortgages. That starts the whole process all over again.”
Now that you know how things these types of government mortgage corporations work, it’s time to back it up to the original. Fannie Mae was established by the US government in 1938 as part of FDR’s New Deal, providing the same services that Freddie Mac does.
The only real difference is that Fannie Mae buys and resells mortgages from commercial banks. Most of the time, Freddie Mac buys back mortgages from smaller bank.
Ginnie Mae does all the same things as Freddie Mac and Fannie Mae. The biggest difference is that this is part of the Department of Housing and Urban Development. Ginnie Mae works almost exclusively with FHA loans, VA loans, USDA loans, and any other nonconventional, government-issued loans.
How Freddie Mac, Fannie Mae, and Ginnie Mae Affect You
These secondary lenders set rules that banks and primary lenders have to follow. They protect the banks and, as an extension, protect communities and people. It’s a good thing to know about the next time you’re looking to buy a house! Or at the very least, could provide you with a trivia answer should you ever make it to “Jeopardy!”.