January 30, 2008 > Fannie Mae and Freddie Mac
Fannie Mae and Freddie Mac
By Sam Rao
Lately, a mysterious trio is often mentioned in the business news. Ever wonder who Fannie Mae, Freddie Mac and Ginnie Mae are? They pay taxes! You can even invite Fannie Mae, Freddie Mac and even Ginnie Mae to your home!
Both Fannie Mae and Freddie Mac are in the business of making loans and loan guarantees in the housing and secondary mortgage market. Since they compete with one another, these entities benefit the eventual home buyers and renters.
Fannie Mae is commonly used and accepted name of the Federal National Mortgage Association (FNMA) which was established in 1938, while 'Freddie Mac' is the moniker for the Federal Home Loan Mortgage Corporation (FHLMC) established in 1970 to counter and compete with the only existing monopoly at that time - Fannie Mae. Both entities are regulated by the Office of Federal Housing Enterprise Oversight (OFHEO), an agency of the Department of Housing and Urban Development (HUD).
Closely related to these two corporations is Ginnie Mae, the Government National Mortgage Association (GNMA), another government agency within HUD created by Congress to ensure adequate funds exclusively for government loans insured by the Federal Housing Administration (FHA) and guaranteed by the Department of Veterans Affairs (VA) and Veterans Administration.
The privately owned Fannie Mae Corporation works with mortgage lenders but does not make loans directly. Working with over 1,000 lenders nationwide, large and small, Fannie Mae helps to make home financing more possible for families from all walks of life across America.
Other services that Fannie Mae offers banks and other mortgage lenders are technology and services so lenders can make more home loans to more consumers. The Fannie Mae's American Dream Commitment, announced in 2000, was a $2 trillion pledge to increase homeownership rates and serve 18 million targeted American families. The Home Counselor Online(tm), an innovative software tool provided to homeowner educators and other housing professionals to assist low- and moderate-income families financially prepare for homeownership is one of the popular technology tools offered. Fannie Mae is also the largest investor in minority banks in the country, serving the largest growing homeowner population. The special Community Development Financial Institutions Initiative provides investment capital to community based banks and financial institutions.
Fannie Mae is headquartered in Washington D.C., with offices in Atlanta, Chicago, Dallas, Pasadena, and Philadelphia. With 55 Community Business Centers across the nation, Fannie Mae employs 5,800 employees and is listed in the Credit Services industry and is a publicly traded company. The financial services company reported revenue for 2003 was $53.8 Billion.
While both Fannie Mae and Freddie Mac essentially have the same charters, as well as U.S. Congressional mandates and regulatory structure, the two companies have different business strategies.
Freddie Mac buys mortgages on the secondary market, pools them, and sells them as mortgage-backed securities to investors on the open market. This secondary mortgage market is earmarked for new home purchases. Thus, Freddie Mac helps keep mortgage interest rates lower. Freddie Mac also offers innovation and automation tools to the mortgage lending process to ease home buying.
Freddie Mac is headquartered in McLean, Virginia and employees 5,000 people with reported revenue of $44 Billion in 2006. One in six home buyers in America have benefited from the services offered by Freddie Mac, according to their study. Some of the services by Freddie Mac include, technology services like Loan Prospector, automated underwriting service to help provide low- cost financing to home buyers of all types.
Recently, along with Congressman Patrick Tiberi (OH-12), Freddie Mac and Park National Bank announced the "Coming Home Initiative" that features Home Possible Mortgages to help US Military members become homeowners. Freddie Mac also provided $2.8 billion in financing to Centerline for low-income multifamily properties located in underserved areas of the country. The tax-exempt affordable housing bond portfolio offering was by Centerline Capital Group. Other popular initiatives are "Get the Facts!" homebuyer workshops and "Credit Smart," an award-winning credit and financial education curriculum for home buyers about credit systems and money management.
According to the Office of Management and Budget (OMB), "mortgage rates are 25 - 50 basis points lower because Fannie Mae and Freddie Mac exist in the form and size they do." Because the secondary mortgage market saves home buyers up to one half percent on their mortgage, borrowers nationwide save an average of nearly $23.5 billion annually.
Official statistics show millions of Americans have benefited from lower monthly mortgage payments and better access to home financing. In the past 35 years, one in six home buyers and more than four million renters in America and more than 50 million homes so far have been financed via secondary mortgage market which is a result of Freddie Mac. Freddie Mac was named one of the 100 best companies for working mothers in 2004 by Working Mothers magazine. Freddie Mac was ranked number 50 in Fortune 500's 2007 rankings.
Fannie Mae Slogan: "Our Business is the American Dream" www.fanniemae.com
Freddie Mac Slogan: "We make Home Possible" www.freddiemac.com
Sources: Fannie Mae, Freddie Mac and Wikipedia