What’s the difference between Fannie Mae and Freddie Mac?

Here’s what you need to know about the two major players behind the scenes of the mortgage industry.

Fannie Mae and Freddie Mac are both home mortgage companies created by the U.S. Congress. They are also both federally backed and provide liquidity, stability and affordability to the mortgage market by offering readily available access to capital and guarantees to many banks, mortgage companies and other financial institutions.

The difference between Fannie Mae and Freddie Mac

While both are better known by their nicknames, Fannie Mae and Freddie Mac have more official titles: Fannie Mae is the Federal National Mortgage Association (FNMA) and Freddie Mac is the Federal Home Loan Mortgage Corporation (FMCC).

How they work

Neither Fannie Mae nor Freddie Mac provide mortgages directly to homebuyers. Instead, homebuyers take out a loan from a mortgage lender. The lender can then choose to sell the loan to Fannie or Freddie, assuming the loan is eligible. According to the Federal Housing Finance Agency, by the first half of 2020, Fannie Mae and Freddie Mac owned 62 percent of eligible loans. 

While there are many similarities between the two federally backed mortgage entities, there are also some fundamental differences. Let’s break it down. 

In general, Fannie Mae tends to buy loans from larger commercial banks and lenders. Freddie Mac usually buys loans from smaller banks or credit unions. This is the primary difference between the two. 

Fannie Mae has also been around about 30 years longer than Freddie Mac. Fannie Mae was created at the end of the Great Depression in the late 1930s to offer a more dependable source of funding for homebuyers. It also led to the long-term, fixed rate mortgage that is still most popular today. 

In the early 1970s, Freddie Mac was created to alleviate interest rate risk for banks in the secondary mortgage market where investors were buying and selling home loans. 

Today, both are responsible for promoting access to mortgage credit by increasing the liquidity of mortgage investments and making more funding available for residential mortgage financing. They are also responsible for maintaining stability in the secondary market for residential mortgages and generally keeping the U.S. mortgage market running smoothly.

Get more insights about the housing market from a U.S. Bank mortgage loan officer.