Saturday, March 6, 2010

Fannie Mae and Freddie Mac

Who are Fannie Mae and Freddie Mac? Sunday July 13, 2008

Fannie Mae -- the Federal National Mortgage Association -- and Freddie Mac -- the Federal Home Loan Mortgage Corporation, while privately owned by shareholders are congressionally-authorized, "government sponsored enterprises" (GSEs) regulated by the U.S. Department of Housing and Urban Development (HUD).

As the largest sources of home financing in the U.S., Fannie Mae and Freddie Mac, as regulated by HUD, are charged by Congress with "providing stability and liquidity in the secondary mortgage market, providing secondary market assistance relating to mortgages for low- and moderate-income families, and promoting access to mortgage credit throughout the Nation, including underserved areas." Both Fannie Mae and Freddie Mac fund residential mortgages by purchasing loans directly from lenders, such as mortgage bankers and depository institutions, and holding these loans in portfolio or by issuing mortgage-backed securities that are sold to a wide variety of investors in the capital markets.

While Fannie Mae and Freddie Mac are privately owned corporations, their status as congressionally authorized, government sponsored enterprises, empowers them with certain privileges including being exempt from paying state and local taxes (except property taxes) and enjoying access to a $2.25 billion standing line of credit from the U.S. Treasury Department. The Treasury Department, at the urging of the Federal Reserve may now temporarily increase this line of credit, in order to help Fannie Mae and Freddie Mac through their current economic problems.

The other two government sponsored enterprises are the Institutions of the Farm Credit System, which include the Agricultural Credit Bank and Farm Credit Banks, and the Federal Agricultural Mortgage Corporation (Farmer Mac). Both of these GSEs provide agricultural real estate interests with the essentially the same services Fannie Mae and Freddie Mac provide to the home mortgage industry.

On September 7, 2008, James Lockhart, director of the Federal Housing Finance Agency (FHFA), announced that Fannie Mae and Freddie Mac were being placed into conservatorship of the FHFA. The action is "one of the most sweeping government interventions in private financial markets in decades". As of 2008, Fannie Mae and the Federal Home Loan Mortgage Corporation (Freddie Mac) owned or guaranteed about half of the U.S.'s $12 trillion mortgage market.


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