Fannie Mae and Freddie Mac roll off of the tongues of just about any person involved with the housing market, but who are they exactly and how do they affect our lives? If you’ve been wondering about these two companies then now is the time to learn more about them.
Who They Are
Fannie Mae is officially known as the Federal National Mortgage Association. It was established in 1938 by Franklin D. Roosevelt as a government agency; however, was re-chartered in 1968 as a government-sponsored enterprise. Freddie Mac is known as the Federal Home Loan Corporation (FHMLC). It was created in 1970 and is also as a government-sponsored enterprise.
What They Do
The jobs of both Fannie Mae and Freddie Mac are to provide liquidity to the housing market using private funds. So let’s say a mortgage company has tons of property in its portfolio, but then it runs out, leaving no lending funds for its lenders. In this sticky situation, it can sell the mortgages it owns to one of these companies, which always has back-up funds.
Another job for these companies is to make sure that there are universal guidelines set in place so that lenders adhere to similar standards. This helps maintain stability in the housing market.
How They Affect Your Life
Up until recently, many people didn’t know that Fannie Mae and Freddie Mac even existed, let alone affected their lives. However, after making headlines because both companies lost money in the stock market, we now know who they are and just how important they are. With these companies being the backbones of the housing market – and then losing money – liquidity was lost. And with no liquidity, no cash was available to lend homeowners who didn’t have cash to pay for their homes. However, this was turned around when the Feds stepped in to loan them taxpayer dollars to stay afloat.
If you’ve wondered about Fannie Mae and Freddie Mac, the recent housing crisis has not only provided more information about who they are, but also how they affect our lives. Of course, we don’t need another financial crisis to bring light to their importance. Hopefully, in the future, they can sit in the background and continue their financing efforts as they have for decades.