Fannie Mae And Freddie Mac: How Do They Work?

Westend61/GettyImages; Illustration by Hunter Newton/Bankrate

As you explore your mortgage options, you’re likely to come across two names: Fannie Mae and Freddie Mac. Although you won’t directly get a home loan through these government-sponsored enterprises (GSEs) — private entities operating under a Congressional charter — they nonetheless have an impact on your getting a mortgage and its terms. Let’s take a closer look at these key players in the mortgage industry, and what distinguishes them.

What are Fannie Mae and Freddie Mac?

Fannie Mae and Freddie Mac are government-sponsored enterprises. Congress created both with the goal of adding stability and affordability to the country’s mortgage market. They also provide banks and mortgage companies with ready access to funds on reasonable terms, adding liquidity to the mortgage market.

Both agencies are major players in the secondary mortgage market. That is, their focus is buying loans from mortgage lenders, giving those institutions more capital to continue offering financing to other borrowers. Fannie Mae and Freddie Mac then either keep them or, more often, repackage them as mortgage-backed securities that can be sold to investors.

By acting as a market-maker — that is, constant buyer — they ensure liquidity in the lending world. As of 2025, Fannie Mae and Freddie Mac support around 70 percent of the mortgage market, according to the National Association of Realtors. That means the majority of conventional loans, those offered by private lenders, end up being backed or purchased by one of the two entities.

Though they set criteria for loans, neither Fannie Mae nor Freddie Mac originate or directly provide mortgages to homebuyers. Instead, you’ll get your loan from a mortgage lender, such as a bank, credit union or online lender, which can then choose to sell the loan to one of these GSEs, assuming the loan’s eligible.

Fannie Mae and Freddie Mac history

In 1938, the government created Fannie Mae, or the Federal National Mortgage Association, amid the struggles of the Great Depression. The goal of Fannie Mae was to create a more reliable source of funding for banks, opening doors for more Americans to become homeowners, figuratively and literally.

Freddie Mac, short for the Federal Home Loan Mortgage Corporation, came on the scene through an act of Congress in 1970, with a similar purpose of ensuring that there are reliable, affordable mortgage funds available nationwide.

Since 2008, Fannie Mae and Freddie Mac have been under the conservatorship of the Federal Housing Finance Agency (FHFA), though they remain separate entities with their own shareholders and leadership.

Both Fannie Mae and Freddie Mac played a role in the financial crisis by backing subprime mortgages, and when the housing bubble burst, they faced large losses and required government bailouts. After taking on more debt, they were placed under FHFA conservatorship to prevent insolvency, and have since repaid most of the bailout funds.

During the COVID-19 pandemic, the two GSEs provided mortgage relief, including forbearance, loan modifications, and a foreclosure and eviction moratorium.

Differences between Fannie Mae and Freddie Mac

While they may seem incredibly similar, Fannie Mae and Freddie Mac have some key differences. Here’s a closer look at what differentiates Freddie Mac from Fannie Mae.

Similarities between Fannie Mae and Freddie Mac

Now that we’ve covered their differences, let’s touch on how Fannie Mae and Freddie Mac are similar.

Who regulates Fannie Mae and Freddie Mac?

Fannie Mae and Freddie Mac are regulated by two government agencies: the FHFA and the U.S. Department of Housing and Urban Development (HUD). Along with HUD and FHFA oversight, the President of the United States appoints five of the 18 board members at each entity. Further details of the regulation for Fannie Mae and Freddie Mac are laid out in two government acts: The Federal Nation Mortgage Association Charter Act and the Federal Home Loan Mortgage Corporation Corporation Act.

What this means for you

Since you can’t take out a mortgage directly from Fannie Mae or Freddie Mac, why should you care about these big names in the mortgage market? In addition to keeping the mortgage market humming and making homeownership more accessible overall, here’s how they can affect you:

• They create more affordable financing options, including lower-down payment loan programs.
• They foster competition among lenders, leading to lower rates.
• They help set borrowing standards, influencing the qualifications you need to meet to obtain a mortgage.

To find out if you have a Fannie Mae- or Freddie Mac-backed loan:

FAQs

• Why do banks sell mortgages to Fannie Mae?
  

  Many lenders specialize in originating mortgages but often sell them to avoid holding the debt for 15 to 30 years. By selling the loan, they can offer new loans to other borrowers. After most mortgages are finalized, the original lender sells them to generate cash, enabling them to offer new loans to other borrowers. A significant number of these loans are purchased by Fannie Mae.

• Who qualifies for Fannie Mae and Freddie Mac loans?
  

  For a mortgage to be eligible for purchase by Fannie Mae or Freddie Mac, it must be at or below the area’s conforming loan limit. In 2025, the conforming loan limit is $806,500 for most areas, with higher limits up to $1,209,750 in more expensive markets.

  Other standards related to both the borrower and the loan also need to be met. For instance, borrowers need a credit score of at least 620 and ideally a debt-to-income ratio of 36%, though it can go up to 50% with compensating factors. The down payment should be at least 3% for a purchase loan or 5% equity for a refinance loan; if it’s lower, private mortgage insurance (PMI) is required. The loan-to-value ratio can go as high as 97%, depending on the loan program.

• Can I buy a house directly from Fannie Mae?
  

  No, Fannie Mae doesn’t offer mortgages directly to borrowers. But its HomePath program enables homebuyers and investors to purchase homes that Fannie Mae has repossessed due to foreclosure, short sale or forfeiture. These properties, often available at lower prices, are sold in as-is condition, though Fannie Mae sometimes makes repairs before listing them for sale. HomePath properties range from single-family homes to condos and townhouses. Some are in move-in ready condition, while others may require varying degrees of repair.