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Understanding Fannie Mae and Freddie Mac

After the release of The Big Short, there seems to be renewed interest in Fannie Mae and Freddie Mac. The subject, unfortunately, can be very difficult to parse. Therefore, I hope to clear up some of the confusion with a post that covers the Fannie Mae and Freddie Mac basics.

What are Fannie Mae and Freddie Mac?

Fannie Mae and Freddie Mac are both mortgage finance companies that are sponsored by the government. This means that they’re government-sponsored entities (GSEs for short). Their main objective is to help make sure that there is liquidity in the housing market.

Essentially what this means is that banks will refinance people’s homes. However, because these loans are big, and because they take so long to pay out, banks can have liquidity problems.

This is where Fannie Mae and Freddie Mac come in. They buy mortgages from the banks, which means that the banks get quicker turnarounds on these loans.

Why Fannie Mae and Freddie Mac?

The names Fannie Mae and Freddie Mac can confuse people, because they seem to come out of nowhere. People wonder if these organizations were named after real people, or whether there is some other elaborate backstory.

The truth is, they’re really just nicknames extrapolated from acronyms. So, Fannie Mae is actually FNMA (Federal National Mortgage Association), while Freddie Mac is actually FHLMC (Federal Home Loan Mortgage Corporation).

Did the Government Bail Them Out? Should I Be Upset about the Bail Out?

The government did bail out Fannie Mae and Freddie Mac in 2008, giving the organizations a whopping $187.5 billion.

However, the government has earned back its investment, and then some. Fannie Mae and Freddie Mac have paid the government $220 billion, more than $40 billion more than what the government gave them.

So the bailout was actually an investment, one that the taxpayers have earned money from.

Call to Action

Still confused? The mortgage market can be a very confusing place. That’s why it’s important to go to the experts. If you would like to utilize the expertise of Choice Mortgage Bank, Emmanuel St. Germain, make sure to call us at 561-362-8204. If it’s after business hours, we can be reached at 561-400-7317.

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