Fannie, Freddie & Ginnie: What and Who Are They?
The Federal National Mortgage Association (FNMA) otherwise known as Fannie Mae was established in 1938 by President Franklin Roosevelt’s New Deal. It was established as a federal agency in the wake of the Great Depression. The corporation’s purpose is to expand the secondary mortgage market by securitizing mortgages in the form of mortgage-backed securities (MSB). This in turn brings liquidity, stability and affordability to the U.S. housing and mortgage markets. It was set up as a publicly traded company by Congress in 1968 and was later converted to a Government Sponsored Enterprise (GSE) to help balance the federal budget.
The Federal Home Loan Mortgage Corporation (FHLMC), also known as Freddie Mac was created as a public corporation in 1970 to compete against Fannie Mae’s domination of the secondary market and to further lower housing costs. This secondary mortgage market not only increases the amount of money available for mortgage lending, but it also increases the money obtainable for new home purchases.
Freddie vs. Fannie
Both Freddie and Fannie have congressional mandates, charters and regulatory structures. Their entities buy mortgages from lenders and package them into mortgage-backed securities that are sold to investors with a guarantee against default. This creates a secondary market, allowing mortgage lenders to use the freed-up funds to make more home loans.
The Government National Mortgage Association or Ginnie Mae was recognized by Congress in 1968 within the Department of Housing and Urban Development. Unlike its Government Sponsored Enterprise (GSE) counter parts, Ginnie doesn’t purchase loans and is not a public company. It promises investors the timely payment of principal and interest on mortgage-backed securities containing federally insured loans (mainly FHA and VA loans) and offers a full faith and credit guaranty of the United States government.
Ginnie Mae backs loans made or guaranteed by the Federal Housing Administration, Department of Veterans Affairs, Department of Agriculture’s Rural Housing Service, and Department of Housing and Urban Development’s Office of Public and Indian Housing.
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