Who are Freddie Mac, Fannie Mae and Ginnie Mae?
Understanding mortgage loan securities.
December 3, 2014 - Author: Helena Fleming, Michigan State University Extension
Freddie Mac and Fannie Mae are known as Government Sponsored Enterprises, private companies that are sponsored by the US Government. Freddie Mac and Fannie Mae are publicly-traded corporations that securitize residential mortgages and sell them to investors as mortgage-backed securities.
Freddie Mac and Fannie Mae are not government agencies, but Ginnie Mae is. Ginnie Mae is housed within the Department of Housing and Urban Development and provides guarantees to cover loses lenders would suffer through federally insured or guaranteed loans, should a residential homeowner default on their borrower obligations. Ginnie Mae is known as a guarantor for federally backed loans, while Fannie and Freddie guarantee loans themselves. This means that when borrowers become delinquent on loan obligations, Fannie and Freddie are responsible for the losses on the loans they guarantee, while Ginnie Mae issuers become financially responsible for the delinquent debt. This encourages lending institutions to be careful in selection of how and who loans are dispersed to since they may be financially responsible for the losses on a bad loan.
Ginnie Mae guarantees mortgage backed securities of those loans that are the following: FHA-Federal Housing Administration; VA-Veterans Affairs; RD-Rural Development; and PIH- Office of Public and Indian Housing. Fannie Mae and Freddie Mac loans are typically conventional mortgage loans. Unlike Fannie Mae and Freddie Mac, Ginnie Mae does not participate in determining eligibility for loan modifications, make loans to potential homebuyers, purchase loans from other lenders or assist potential homebuyers with purchasing a home. The criteria and decisions for all of the aforementioned are executed by the lender. Ginnie Mae exists to solely guarantee the security of the loan. Fannie Mae and Freddie Mac are regulated under the conservatorship authority of the Federal Finance Housing Agency.
Fannie Mae typically buys loans from larger commercial banks. Freddie Mac purchases mortgage loans from smaller banks and credit unions, also known as “thrift” savings institutions. Those loans are then pooled together and sold to investors as mortgage-backed securities.
This and more information is communicated to potential homebuyers who attend the Homeownership Seminars that Michigan State University Extension provides to the community.