What are Fannie Mae, Freddie Mac and Ginnie Mae?

Nations Lending’s management feels that it is important for our originators and branch managers to have a basic understanding of the capital markets. After all, what happens in those markets directly influences our borrower’s rates. And it is estimated that currently 90% of mortgages are through Ginnie, Fannie, and Freddie.

Fannie Mae is the nickname for the Federal National Mortgage Association (FNMA) and Freddie Mac is the name used for the Federal Home Loan Mortgage Corporation (FHLMC). Ginnie Mae is the Government National Mortgage Association (GNMA).

Fannie and Freddie are “government sponsored entities,” or GSEs. The definition of a GSE is a private corporation that is created by Congress. But why do Fannie and Freddie even exist? Fannie and Freddie act as clearing houses or conduits between investors and borrowers, and to provide liquidity to the mortgage markets. Why produce shoes if there were no buyers? Freddie and Fannie help serve in that role.

But our Nations originators know that they also do more. By having a central entity to provide standard underwriting guidelines and purchase mortgages that meet those guidelines from borrowers, mortgages become cheaper for borrowers to obtain, thus expanding the opportunity of homeownership. More money is available for residential lenders since they do not have to hold onto the mortgages they fund, but can sell them to Freddie & Fannie thereby having more funds to make future mortgages.

Ginnie Mae acts in a similar manner to Fannie and Freddie, but instead of conventional loans from the private sector, Ginnie issues mortgage-backed securities of government-insured mortgages, primarily FHA and VA mortgages, which are backed by the U.S. Government. The purpose and result is the same as with Fannie and Freddie: provide more efficient movement of capital from investors to lenders to expand availability of funds for mortgages thereby reducing costs to borrowers and expanding homeownership.