The Future of Fannie Mae & Freddie Mac and What It Means for You

By HOM Editorial Team
March 2014

Fast Fact: Your home’s value and a healthy housing market depend on availability of home loans. Fannie Mae and Freddie Mac back most loans today. But that’s changing — and it could affect you.


The government created Fannie Mae 75 years ago to help more Americans become homeowners. Fannie Mae (along with Freddie Mac, which was created in 1970) was incredibly successful, helping bring the dream of homeownership to well over half of all Americans.

And since housing accounts for about 20% of the overall economy, even non-homeowners benefitted.

Fannie and Freddie, together referred to as Government Sponsored Enterprises (GSEs), did this by buying home loans from banks and reselling them to investors in the form of mortgage-backed securities (MBS) on what’s called the secondary market. There was an implied guarantee that if the loans went into default the government would make good on them.

Over time, Congress and various presidents made more demands on Fannie and Freddie. Eventually, in addition to generating a profit for its shareholders, Fannie and Freddie started backing riskier loans to support affordable housing initiatives. Critics say they simply became political pawns.

When the real estate bubble burst, Fannie and Freddie got stuck with hundreds of billions of dollars of loans in default. Investors, concerned that the entire system was flawed, stopped buying loans, which caused banks to reduce lending.

Home loans quickly became tougher to get, hurting the housing market and home values even more. But it could have been worse if Fannie and Freddie weren’t there.

FACT: Some in Washington want to eliminate Fannie Mae and Freddie Mac.

In 2008 the U.S. government infused $189 billion in taxpayer money into Fannie and Freddie and placed them into conservatorship. The good news is that almost all of that money has been recovered, and Fannie and Freddie are now among the most profitable financial companies in the country.

Some in Congress and President Obama want to reform Fannie and Freddie, while others believe they should be dismantled. At the heart of these discussions is the desire to protect taxpayers from future bailouts, a goal everyone can agree on.

FACT: Reform is already happening. For example, effective November 1, Fannie Mae no longer allows mortgages with less than a 5% down payment.

Fannie and Freddie, despite their flaws, are helping the housing recovery. Getting rid of them doesn’t solve the problem. Reform is a better path. Making sure future homeowners have access to affordable home loans is good for the economy, and it’s good for home values.


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