Fannie Mae & Freddie Mac Are Mostly The Same Thing

June 13, 2019 by Dan Green

There’s a bit of sibling rivalry between two of the government’s mortgage financing groups. Home buyers can exploit that relationship for better loans with better terms.

The two groups are Fannie Mae and Freddie Mac.

Fannie Mae was established in the 1930s to make mortgage loans more accessible to U.S. buyers, and Freddie Mac was created in 1970 because Fannie Mae’s share of the market had approached monopolistic levels.

The groups fulfill the same role for home buyers. 

Fannie Mae and Freddie Mac exist to “purchase” mortgage loans from your lender, so your lender can re-lend that cash from their accounts. The purchased loans, meanwhile, get packaged into bonds on Wall Street, which corporations, governments, and pension funds use for investments.

Because of Fannie Mae and Freddie Mac, when you buy a house, you have the option of getting a fixed-rate mortgage. Buyers in Canada and England, as examples, don’t have that option.

There’s not much difference between the two groups, either.

Fannie Mae and Freddie Mac are so alike that lenders refer to loans from both agencies by the same generic name — conventional loans. Sometimes, though, because interest rates can vary slightly between the groups, home buyers can take advantage and get some better terms.

When you’ve found a house you like, your mortgage lender will find the best interest rate for you automatically and tell you whether it’s from Fannie Mae or Freddie Mac.

 

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