Many people often ask the question “What are Fannie Mae and Freddie Mac?” These names are often heard during discussions of the economy. They are often mentioned rapidly, followed by strings of numbers. This is just enough information for most people to know they are important, but not enough to know exactly what they are.
First, it would be best to clarify that Fannie Mae and Freddie Mac are two separate institutions. What are each of them? And why are they so often referenced together?
Fannie Mae and Freddie Mac are both financial organizations that work with home loans or mortgages. However, each institution has different histories and should be discussed separately.
The oldest of the two financial institutions is Fannie Mae. Fannie Mae was originally created to help boost the housing market shortly after the Great Depression. In 1938 Franklin Delano Roosevelt signed the New Deal that made several amendments to the National Housing Act.
One of these was to create the Federal National Mortgage Association, which used the abbreviation FNMA. This abbreviation, if pronounced phonetically, sounds close to Fannie Mae, which is where the name comes from.
Originally, Fannie Mae simply provided money for banks to fund home mortgages. Eventually, the role of Fannie Mae became one of selling Mortgage Backed Securities.
Freddie Mac has a similar, but much shorter history. Freddie Mac was created expressly to help sell more Mortgage Backed Securities to help further the mortgage market after another economic slump. This institution was created in the early 1970s, called the Federal Home Loan Mortgage Corporation. The last two letters of the abbreviation FHLMC is where the “Mac” in the name comes from.
These two institutions are most often referred to together due to the ownership of them. Both were taken over by the Federal Housing Finance Agency in the fall of 2008. This decision has created a lot of discussion, since the Federal Government is now so closely tied to the private financial sector.