January 10, 2019
Fannie Mae, Freddy Mac … What do These Names Refer To?
If someone pays even a cursory level of attention to news about real estate, they hear the names Fannie Mae and Freddy Mac thrown around. But we at Topouzis & Associates, P.C. find that those who are new to the market, or who have never followed the ins and outs of real estate, often face a period of confusion about who—or what—these names refer to. So we thought we might help clear things up a bit.
The first point of clarification: Fannie Mae and Freddy Mac are “whats,” not “whos”. They are government-sponsored enterprises—private companies in the home mortgage industry, which the federal government has a hand in (and in which it has since the bailouts of 2008 become more deeply invested—and over which it has established more of a directive relationship).
These companies are separate entities from one another, with different leaderships, that compete under the same business model. Their modi operandi: they purchase mortgages on the secondary mortgage market—which is the market in which securities and bonds are sold using the value of mortgage loans as collateral—after which they collect these loans together into “pools” and sell them in the open market, to investors, as mortgage-backed securities. The purpose behind these transactions is to enable lenders to re-invest the money they make from these sales, fostering the ongoing flow of loan funding within the real estate industry, in order to keep this portion of the economy liquid. This in turn allows more consumers to purchase homes.
The only real major differences between the two entities are (1) the types of mortgages on which each company tends to focus its purchases: Freddy Mac purchases its mortgages mostly from small banks, like locally-owned savings and loan associations, while Fannie Mae concentrates on loans made by larger, commercial banks; and (2) their names, which are (loosely) based on the acronyms for their longer, more official names: Freddie Mac, created in 1970, is in fact the Federal Home Loan Mortgage Corporation (or FHLMC). Fannie Mae, established in 1938 as part of the Great Deal, is the Federal National Mortgage Association (FNMA).
Our title services customers gain peace of mind from the existence of Fannie Mae and Freddie Mac—without which the real estate market would not be nearly what it is, nor they, in many cases, able to buy a new home. And we here at Topouzis & Associates, P.C., are proud in turn to provide the peace of mind that, after purchase, a new home’s title will not be subject to any nasty surprises. Whether you’re looking to engage in the market in Providence, Rhode Island; Boca Raton, Florida; or Peabody, Massachusetts, feel free to contact us for more information.