What or Who Are Fannie Mae and Freddie Mac?

Fannie Mae and Freddie Mac are two housing government-sponsored enterprises (GSEs).  These GSEs were chartered by Congress (The Federal Housing Enterprises Financial Safety and Soundness Act of 1992 or more commonly known as The GSE Act) to create a secondary market for residential mortgage loans. They are considered "government-sponsored" because Congress authorized their creation and established their public purposes.

Fannie Mae and Freddie Mac are the largest source of housing finance in the United States. Their Congressional charters require each corporation to achieve public purposes that include providing stability and liquidity in the secondary mortgage market, providing secondary market assistance relating to mortgages for low- and moderate-income families, and promoting access to mortgage credit throughout the Nation, including underserved areas.

Even though Fannie Mae and Freddie Mac are congressionally chartered, they are also private, shareholder-owned corporations that have been regulated by HUD since 1968 and 1989, respectively. Both GSEs fund residential mortgages by purchasing loans directly from lenders, such as mortgage bankers and depository institutions, and holding these loans in portfolio or by issuing mortgage-backed securities (MBS) that are sold to a wide variety of investors in the capital markets.

HUD regulates Fannie Mae and Freddie Mac, with oversight authority to ensure that both GSEs comply with the public purposes set forth in their Charters. An independent office of HUD, the Office of Federal Housing Enterprise Oversight (OFHEO), regulates both GSEs for safety and soundness by ensuring that they are adequately capitalized and operating their businesses in a financially sound manner.

The GSE Act:

The Federal Housing Enterprises Financial Safety and Soundness Act of 1992 (the GSE Act) established the current regulatory structure for the GSEs. The legislation divided the Federal government's regulatory responsibilities over Fannie Mae and Freddie Mac between the Secretary of HUD and the Director of OFHEO. Under the GSE Act, the Secretary of HUD is charged with general regulatory authority over Fannie Mae and Freddie Mac in all areas other than the GSEs' financial safety and soundness, which is the responsibility of the Director of OFHEO.

Specifically, the Secretary of HUD's authority includes setting the level of, and enforcing, three affordable housing goals, monitoring compliance with fair lending requirements, collecting loan-level data from the GSEs on their mortgage purchase activities, creating and making available to the public a database of non-proprietary GSE loan purchase data, and reviewing and approving new GSE programs with express authority to disapprove any program that the Secretary determines is not authorized under a GSE's charter act purposes or that otherwise is not in the public interest.

Alan 'AJ' Nisen, California Contra Costa Mortgage Loan Officer is a proud member of the ActiveRain Real Estate Network, a free online community to help real estate professionals grow their business.