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The Federal Housing Administration, Fannie Mae, and Freddie Mac

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HIGHLIGHTS
  • Fannie and Freddie buy conforming mortgages.
  • GSEs hold or pool approximately $5 trillion worth of mortgages.

All About the Federal Housing Administration, Fannie Mae, and Freddie Mac.

The Federal Housing Administration is just one part of the government created system to keep the mortgage market and help home buyers become homeowners. Although none make loans directly to consumers, each has a very important role to play and none could continue to operate without the other. Apply for an FHA Loan Today.

The Federal Housing Administration

More commonly known as the FHA, the Federal Housing Administration is a part of the Department of Housing and Urban Development. The FHA�s role is to stabilize the housing market by helping first-time buyers become owners and current owners refinance difficult mortgages. It also offers loans to Native Americans buying homes on reservations and buyers rehabilitating distressed homes.

The FHA sets requirements for the loans it insures, and also approves and monitors lenders who issue FHA-insured loans to buyers. The FHA insures those loans by collecting mortgage insurance premiums, and paying claims to lenders if the loans go into default.

Because it is a part of the federal government, the FHA is able to insure loans issued to less-qualified buyers than conventional lenders could. This enables more people to move into the market. However, it is also charged with maintaining certain standards to prevent the insurance from becoming a taxpayer burden.

Fannie Mae

Fannie Mae is acronym for the Federal National Mortgage Association. Fannie Mae, Freddie Mac, and Farmer Mac began their lives as government-sponsored enterprises (GSEs). Fannie, Freddie, and Farmer buy "conforming mortgages" that meet the underwriting requirements of the agencies, and are no larger than the largest loan they are allowed to purchase. According to the Federal Reserve, GSEs hold or pool approximately $5 trillion worth of mortgages.

Today, Fannie Mae is a shareholder-owned company with a federal charter and a public mission to buy mortgages on the secondary market, which allows lenders to continue issuing new mortgages. It is solely funded by private investor funds, and receives no federal funds, although it is subject to limited federal oversight by HUD and the Office of Federal Housing Enterprise Oversight (OFHEO).

Fannie Mae is also restricted in the value of the loans it can acquire from lenders. The conforming loan limit is determined each year by the OFHEO. The limits are similar to FHA loan limits. Although most loans are for single-family homes, it can also buy loans issued to developers of multi-family rental housing, especially affordable housing.

Once it purchases the loans, Fannie Mae packages them into mortgage-backed securities, which it then sells.

Freddie Mac

Freddie Mac is the acronym for the Federal Mortgage Acceptance Corp. Like Fannie Mae, it ensures continued availability of mortgage capital by buying loans from lenders and selling the resulting securities to investors. It is subject to the same oversight as Fannie Mae, and is also a shareholder-owned corporation with a federal charter. It receives no federal funds. It is also subject to the same loan limits as Fannie Mae.

Without these three entities, the housing market would have much less liquidity. Mortgages would be harder to get, which would result in lower homeownership rates. It would also make homes more difficult to sell. Because all three entities avoid involving taxpayers, there is little impact on your taxes from their activities.

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