Fannie Mae, Freddie Mac and Ginnie Mae. These may sound like great names for a hip hop group, but in the world of home buying they play a very serious role.
Fannie Mae, Ginnie Mae, and Freddie Mac are all government-sponsored mortgage companies. These private companies are referred to as "secondary market lenders" that back loans and set guidelines. Homeownership is more accessible because they back and secure home mortgage loans.
What's with the odd names?
If these names same odd to you, you are not the only one. Being able to explain what the names mean will make you seem a little smarter than the next guy. Many people in real estate refer to Fannie, Ginnie, and Freddie on a first-name basis without ever knowing the actual origin of the names.
With that being said, let's dive in!
The Federal National Mortgage Association which is known as Fannie Mae. This came from the acronym FNMA. Fannie for the letters "FN" and Mae for "MA."
The Government National Mortgage Association which is known as Ginnie Mae, came from its acronym GNMA. Ginnie from "GN" and Mae from "MA."
Freddie Mac is less obvious than the other two. Similar to Fannie and Ginnie, Freddie Mac, or Federal Home Loan Mortgage Corporation, was derived from its acronym FHLMC. Freddie, from "F" and Mac from "MC." It seems the jury is still out on as to why letters "HL" were left out. So much so that in 1997 the company abandoned the acronym FHLMC altogether to officially become just Freddie Mac.
2. What is the different about Freddie, Fannie and Ginnie?
Fannie Mae, Freddie Mac, and Ginnie Mae are all government-sponsored mortgage companies, but each have a different purpose and serve different homebuyers.
Fannie Mae was created in 1938 as part of FDR's New Deal, in an effort to secure mortgages via what are called mortgage-backed securities. Mortgage-backed securities are packaged mortgage loans that are then sold to investors.
The creation of Fannie Mae and Mortgage-backed securities helped increase the number of lenders, as lenders no longer need to rely on personal or private funding for home mortgage loans.
This helped open the doors of homeownership, as mortgage loans became more accessible.
Ginnie Mae was established in 1968 in an effort to make owning a home more obtainable for more people via increased accessibility to mortgage loans. Ginnie Mae is an extension of the department of housing and urban Development, also known as "HUD". Ginnie Mae specifically deals with non-conventional loans such as FHA loans, VA loans, and USDA loans, also known as government-insured loans.
Freddie Mac is sometimes referred to as the sister organization of Fannie Mae. Freddie Mac was created in 1970 to continue the expansion of secondary market lenders along with Fannie Mae.
What sets Freddie Mac and Fannie Mae apart? Freddie Mac purchases home mortgage loans from smaller banks and lenders whereas typically, Fannie Mae purchases home mortgage loans from commercial banks, or big banks.
Additionally, Fannie Mae and Freddie Mac loans are typically conventional loans, which are not insured by the government.
3. How is all this relevant to your average homeowner?
Similar to any lender or financial institution, the financial stability and health of Fannie Mae, Freddie Mac and Ginnie Mae has a direct impact on homebuyers. When these organizations decline, homeownership becomes more difficult.
Fannie Mae and Freddie Mac are not only secondary market lenders, but these organizations also set regulations and guidelines for mortgages that depository and non-depository institutions have to abide by.
By "depository" as in commercial banks and by "non-depository" as in direct lenders.
It is smart to stay informed on not only the financial health of Fannie Mae and Freddie Mac, but also any updates they make to regulations, as it will likely impact both the terms and accessibility for future and/or current mortgage.