Who are Fannie Mae and Freddie Mac?

Who are Fannie Mae and Freddie Mac?

Are you beginning the process of buying your first home? Maybe you’re looking for a loan to finance the purchase, and you’ve heard someone mention Fannie Mae and Freddie Mac. Don’t worry, we’re here to help break down some of the pieces of this puzzle, and give you enough context to get started. 

Do I Need to Know Fannie Mae and/or Freddie Mac?

Short answer: Maybe! If you’re trying to obtain a conforming loan that meets the requirements for a Fannie Mae or Freddie Mac loan. Doing this means you could achieve a potentially lower interest rate and required down payment.

Longer answer… First, let’s get to know Fannie and Freddie. 

First, Fannie Mae and Freddie Mac are not people. They are Federal National Mortgage Association (FNMA – said rapidly, Fannie Mae) and the Federal Home Loan Mortgage Corporation (FHLMC – said equally rapidly, Freddie Mac). 

Fannie Mae & Freddie Mac are both federally-backed home mortgage companies and compete on the secondary mortgage market as mortgage investors.

They buy mortgages from mortgage originators (banks, mortgage brokers, and other lending institutions), and sometimes bundle these mortgage loans into packages known as mortgage-backed securities (MBS). 

(And if you’re already confused by that, head here to learn more about mortgage originators and the primary mortgage market – then come on back.)

How Fannie Mae was Born

In the early 20th century, not enough people were financially capable of buying a home. Meanwhile, banks didn’t have enough assets to finance home purchases in a single mortgage market. 

Because of this housing crisis, Congress created Fannie Mae in 1938 as part of then-President Franklin D. Roosevelt’s New Deal. Its purpose was to expand the secondary mortgage market. 

It provided reliable, steady funding for mortgages and made it possible for originators to issue more housing loans.

Initially, Fannie Mae was the dominant buyer and seller of government-insured mortgages, before it was privatized in 1968. This made it a shareholder-owned company that was funded completely with private capital instead of government funds.

Freddie Mac – Fannie Mae’s Little Brother

Born in 1970, Freddie, just like Fannie, was designed to join the secondary mortgage market and to ensure banks did not run out of money. This means they would be able to continue financing loans to their customers. Freddie, like Fannie, was also turned into a shareholder-owned company in 1989. 

The main difference is that Fannie buys her mortgages from major retail and commercial banks (think, Wells Fargo, Bank of America, Chase) while Freddie focuses on buying his mortgages from banks who service communities (think, smaller local banks and credit unions).

How and Why Borrow from Fannie and Freddie

Borrowers don’t interact directly with Fanny or Freddie, but rather work with lenders who are backed by them. Those lenders backed by Fannie and Freddie can give you access to thousands of banks and mortgage companies. 

Loans purchased and guaranteed by Fannie and Freddie are called conforming loans

They have stricter guidelines, regulations, and underwriting requirements, but in return guarantee long-term stability and liquidity. And, as mentioned, potentially lower interest rates and required down payments because of relatively low risk.

Loans that do not meet Fannie and Freddie’s requirements are called non-conforming loans. These loans have a lot more flexibility in their requirements. This can translate to significantly more flexibility for borrowers (including high loan amounts for larger purchases). Though that flexibility can come at the cost of higher interest rates and down payments.     

Many of the loans needed to purchase homes in the Bay Area and Los Angeles need to be non-conforming. So, if you’re looking to purchase in the Bay Area or Los Angeles, our team at Willowmar would be happy to discuss more. 


Willowmar Real Estate is a small and vibrant, top-producing real estate team servicing the San Francisco Bay Area & Greater Los Angeles. Our clients live throughout the San Francisco Bay Area, US and abroad, and our services are tailored to meet their needs. We wear the compasses of guides, the souls of counselors, the hats of project managers and the hearts of advocates with you every step of the way. In addition, with our highly recommended list of vendors, whom we view as an extension of our business, we are constantly matchmaking. We’ve got our trusted pocketbook of contractors, designers, attorneys, painters, childcare providers, you name it — and partner agents around the globe as you continue to find your place in the world.

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