How Freddie Mac Works

by Muna Dionne

How Freddie Macs - The difference between Freddie Mac and Fannie Mae

Last week, I explained how Fannie Mae operated from a home buyer’s perspective. This week, I figured it would be appropriate to discuss Fannie Mae’s counterpart: Freddie Mac. While similar in some aspects, they differ from each other as well. Let’s explore this, shall we?

How Freddie Mac Works

Similarities

Congress created both of these organizations (Fannie Mae in the late 1930s and Freddie Mac in 1970). Neither one provides funding directly to home buyers. Instead, they help keep the market stable by purchasing loans on the secondary market. This frees up money for banks to lend to more home buyers.

With the housing bubble bursting in 2008, both entities received money from the government to help stabilize a rapidly devolving economy before a major crash could occur. The Federal Housing Finance Agency (FHFA) became the conservator for both organizations. Within one year of FHFA’s oversight, Freddie Mac, Fannie Mae, and the FHLB were responsible for 90% of all new mortgages on the market, more than double the amount prior to 2008.

Then came COVID. Many people and businesses struggled in the early days of COVID-19. Again, this threatened the real estate market. People couldn’t keep up with their mortgages. These struggles brought about the CARES Act. This protected homeowners with Fannie Mae or Freddie Mac-backed loans from foreclosure for a set period of time (with restrictions).

Differences

While similar in many respects, these two entities also differ. Fannie Mae buys its mortgages from bigger and more commercial banks. Freddie Mac purchases them from smaller banks. While the former was created to help make housing more affordable and provide more access to funding for home buyers, the latter came about due to a desire to expand the secondary mortgage market.

While Fannie Mae offers assistance to home buyers via its HomeReady loan program, Freddie Mac offers Home Possible. Home Possible limits household income to 80% of the local median income. However, it also allows you to fund some of your down payment as part of your mortgage loan through its Affordable Seconds program where allowed. Both programs benefit home buyers whether this is their first home or not. Discuss the pros and cons of both with your lender before deciding which one to pursue.

Muna Dionne, your Inland Empire specialist with Coldwell Banker Realty