Freddie and Fannie

The Federal National Mortgage Association (FNMA) (NYSE: FNM), commonly known as Fannie Mae, is the leading market-maker in the U.S. secondary mortgage market. Fannie Mae purchases residential mortgages and converts them into securities for sale to investors. By purchasing mortgages, Fannie Mae supplies funds that lenders may loan to potential homebuyers. This process replenishes the supply of money for mortgages and enables money to be available for housing purchases. Fannie Mae is a government sponsored enterprise (GSE) of the United States and a stockholder-owned corporation authorized to make such loans and loan guarantees.

As of 2008, Fannie Mae and the Federal Home Loan Mortgage Corporation (Freddie Mac) own or guarantee about half of the U.S.’s $12 trillion mortgage market. As a result, the corporations were particularly affected by the economic downturn in late 2007 and early 2008. Although they guarantee or own only half of the mortgage market, because the subprime mortgage crisis has caused almost all other lending sources to pull out of the market, they are responsible for more then 80% of new mortgages being made in 2008.

The name “Fannie Mae” is a creative pronunciation of the company’s name that has been adopted officially for ease of identification. It is more than an informal nickname; FNMA refers to itself by this name.

Freddie Mac

Federal Home Loan Mortgage Corporation (FHLMC) (NYSE: FRE), commonly known as Freddie Mac, is a government sponsored enterprise (GSE) of the United States federal government. It is a stockholder-owned corporation authorized to make loans and loan guarantees. The FHLMC was created in 1970 to expand the secondary market for mortgages in the US. Along with other GSEs, Freddie Mac buys mortgages on the secondary market, pools them, and sells them as mortgage-backed securities to investors on the open market. This secondary mortgage market increases the supply of money available for mortgages lending and increases the money available for new home purchases. The name “Freddie Mac” is a creative acronym of the company’s full name that has been adopted officially for ease of identification (see “GSEs” below for other examples).