Fannie, Freddie and Ginnie and what do they have to do with your mortgage?

If you’re ready to buy a home , you’ve probably heard names like Fannie Mae, Freddie Mac, and Ginnie Mae mentioned by lenders. Who are these people? How do they relate to your mortgage ?

In fact, they aren’t people at all, but rather the nickname for the largest government-sponsored mortgage company. They buy mortgages from private lenders and banks, freeing up capital and reissuing more mortgages. Fannie Mae, Freddie Mac, and Genie have had a huge impact on the mortgage industry because they set the standards for all American mortgages based on the size and type of loans purchased from other lenders. Here are some details about each company to help you understand their role:

fanny mae

Fannie Mae, officially called the Federal National Mortgage Association (FNMA), was founded during the Great Depression by FDR to help get the economy moving again. Tasked with providing liquidity, stability, and affordability to the U.S. housing market, Fannie is a government-sponsored entity (GSE), meaning it is a private, shareholder- owned company that is backed by the federal government. Fannie purchases mortgage loans from large institutions, such as big banks, and then funds those purchases by bundling the mortgage loans together and selling them as smaller securities on the secondary market.

Freddy Mac

The Federal Home Loan Mortgage Corporation (FMCC) came into being in 1970, expanding government purchases of mortgages from banks and smaller lenders. They also sell these mortgage loans on the secondary market to companies like hedge funds, pension funds, and individual investors. This helps spread the risk of these mortgages across many investors rather than keeping it all in individual companies.

Fannie and Freddie typically buy conventional loans with a loan-to-value ratio of 80 percent or higher with terms of 30 years or less. Because of government backing for each loan, interest rates and other factors are competitive.

ginny mae

Unlike Fannie Mae and Freddie Mac, the Government National Mortgage Association (GNMA) or Ginnie Mae is a government- owned company . It is part of the Department of Housing and Urban Development (HUD) and is responsible for processing all non-conventional mortgage loans, such as FHA, VA, and USDA loans. All of these loans are guaranteed by the federal government, giving lenders the confidence and ability to offer lower interest rates , smaller down payments, and better overall terms to low- and moderate-income families.

So, while you may not deal directly with Fannie Mae, Freddie Mac, or Genie, each company plays a critical role in getting you the money you need to finance your home purchase. Your loan criteria will affect how much of a down payment your lender requires, how high your credit score needs to be, and how low of an interest rate you’ll receive. Understanding what these government-backed companies do can help make the mortgage process easier for you.

1. Annie Mae (Federal National Mortgage Association):
   • Founded in 1938 as a government agency , but then privatized in 1968.
   • Purchases mortgages from private lenders and banks on the secondary market.
   • It helps free up capital for the original lenders, allowing them to make more mortgage loans.
   • It sets standards for the mortgages it acquires, influencing lending criteria across the industry.
2. Freddie Mac (Federal Home Loan Mortgage Corporation):
   • Created in 1970 to provide competition to Fannie Mae and increase liquidity in the mortgage market.
   • It works similarly to Fannie Mae, purchasing mortgages on the secondary market and issuing mortgage-backed securities.
   • It also sets standards for the mortgages it purchases, albeit with slightly different approaches than Fannie Mae.
3. Ginnie Mae (Government National Mortgage Association):
   • Established in 1968 as a government agency within the U.S. Department of Housing and Urban Development.
   • Unlike Fannie Mae and Freddie Mac, Ginnie Mae does not purchase mortgages directly; instead, it guarantees government-backed mortgage – backed securities, such as FHA (Federal Housing Administration) or VA (Veterans Affairs) loans.
   • Its primary function is to ensure the safety of mortgage-backed securities, which helps keep the costs of government-backed mortgage financing low.

These three entities have had a significant impact on the U.S. mortgage industry by providing liquidity to the secondary market and setting standards for mortgages, which has contributed to the stability and accessibility of the mortgage market in the country.