Freddie Mac (Federal Home Loan Mortgage Corporation) and Fannie Mae (Federal National Mortgage Association) are government-sponsored enterprises (GSEs) in the United States. They play crucial roles in the country's housing finance system.
1. **Fannie Mae**: Established in 1938 as part of the New Deal, Fannie Mae was created to expand the secondary mortgage market by securitizing mortgages, allowing lenders to reinvest their assets into more lending. This helps to increase the availability and affordability of home loans for borrowers.
2. **Freddie Mac**: Created in 1970 to further expand the secondary mortgage market and provide competition to Fannie Mae, Freddie Mac also purchases mortgages from lenders, pools them, and sells them as mortgage-backed securities to investors on the open market.
### Roles and Functions
- **Liquidity**: By purchasing mortgages from lenders, both Freddie Mac and Fannie Mae provide liquidity, enabling lenders to offer more loans to homebuyers.
- **Stability**: They help stabilize the mortgage market by ensuring a continuous flow of funds.
- **Affordability**: They aim to make homeownership more accessible by ensuring that there is a steady supply of mortgage funds and by supporting programs for affordable housing.
### Differences
- **Market Focus**: While their functions are similar, they may focus on different segments of the mortgage market. For instance, Fannie Mae tends to work more with larger commercial banks, while Freddie Mac often deals with smaller banks and thrifts.
Both entities operate under the conservatorship of the Federal Housing Finance Agency (FHFA) since the 2008 financial crisis, which means they are overseen and regulated by the government to ensure stability in the housing market.
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