Eli5: What is the difference between the roles of the FHA, Freddie Mac, and Fannie Mae?

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Eli5: What is the difference between the roles of the FHA, Freddie Mac, and Fannie Mae?

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Anonymous 0 Comments

Freddie Mac and Fannie Mae are government sponsored enterprises. They started out as private companies that agreed to operate under government regulation. In 2008, during the housing crisis, the federal government took them over. Their only purpose is to purchase mortgages from lenders and hold them in their portfolios, or package them into mortgage backed securities to be sold. (which is what got them into trouble in the housing crisis.) They buy conventional mortgages, and free up the lenders’ capital so they can issue more loans. Both are regulated by the FHFA (federal housing finance agency.) They both do the same thing, they just started out as two different private companies. The main difference between them is the type of banks and lending institutions they buy from. The vast majority of home loans in the US are are backed by one or the other, regardless of who originated the mortgage.

The FHA, on the other hand, was always a government agency. It insures home loans. It’s purpose is to make homeownership more attainable for low to moderate income buyers. (Buyers that would likely not qualify for a conventional mortgage, are able to qualify because FHA insures them…so if the buyer fails to pay, FHA will.) They are part of the department of Housing and Urban Development (HUD).

Anonymous 0 Comments

Freddie Mac and Fannie Mae are government sponsored enterprises. They started out as private companies that agreed to operate under government regulation. In 2008, during the housing crisis, the federal government took them over. Their only purpose is to purchase mortgages from lenders and hold them in their portfolios, or package them into mortgage backed securities to be sold. (which is what got them into trouble in the housing crisis.) They buy conventional mortgages, and free up the lenders’ capital so they can issue more loans. Both are regulated by the FHFA (federal housing finance agency.) They both do the same thing, they just started out as two different private companies. The main difference between them is the type of banks and lending institutions they buy from. The vast majority of home loans in the US are are backed by one or the other, regardless of who originated the mortgage.

The FHA, on the other hand, was always a government agency. It insures home loans. It’s purpose is to make homeownership more attainable for low to moderate income buyers. (Buyers that would likely not qualify for a conventional mortgage, are able to qualify because FHA insures them…so if the buyer fails to pay, FHA will.) They are part of the department of Housing and Urban Development (HUD).