Freddie Mac and Fannie Mae are two corporations which were created by the U.S. federal government decades ago, but are now owned by share holders. They play an important role in the mortgage industry which impacts home buyers, lending institutions, and investors.

Freddie Mac was created decades after Fannie Mae came into existence. According to FreddieMac.com, the company’s goals were defined by the U.S. Congress in 1970; they include the expansion of affordable housing and making sure that lenders have sufficient money to issue low interest mortgage loans. The web site states that Freddie Mac doesn’t directly issue mortgage loans to homeowners. Instead, it buys mortgages from lending institutions which want to sell them; this provides lenders with more money and allows them to make additional loans. Then it earns money from interest paid on the mortgage, as the original lender would if they had retained possession of the loan. It goes on to use the mortgages as a basis for selling “mortgage-backed securities” to investors. The company also takes measures to educate potential home buyers about mortgages and home-buying in general, including informational sections on its web site and free workshops which are held across the nation. Freddie Mac is another name for the Federal Home Loan Mortgage Corporation.

Fannie Mae, or Federal National Mortgage Association, was formed in 1938. The Fannie Mae web site indicates that it was originally a government agency, but became a separate corporation in 1968. The goals stated by its web site are much the same as those of Freddie Mac. It indicates that Fannie Mae works with over one-thousand lending institutions in the United States. It is based in Washington, D.C. unlike Freddie Mac, which is headquartered in Virginia. Both corporations have a limit ($417,000 dollars in the continental U.S., as of 2007/2008) of how large a mortgage they are willing to purchase from lenders. This contributes to the higher interest rate on mortgages for more expensive homes, as banks aren’t able to sell them to Fannie Mae or Freddie Mac. Fannie Mae also makes charitable contributions aimed at eliminating homelessness and promoting the expansion of home ownership.

Basically, Freddie Mac and Fannie Mae perform a similar role in the economy, which benefits both lending institutions and mortgage borrowers. They help lenders gain revenue from mortgages more quickly, and enable home buyers to have greater access to new mortgage loans.