Coming to Friendly Terms in Real Estate

Ginnie, Freddie, and Fannie are friends of the real estate mortgage and housing industry. You hear about them whenever you read very deeply about how mortgages work. But who are they? And what do they have to do with you?

What’s in a name?

These three entities are nicknames for mortgage agencies established by the United States Government. Freddie and Fannie are siblings, while Ginnie is more of a cousin.

- Fannie Mae is the nickname for FNMA-the Federal National Mortgage Association.

- Freddie Mac is the nickname for FHLMC-the Federal Home Loan Mortgage Corporation.

- Ginnie Mae is the nickname for GNMA-the Government National Mortgage Association.

A little family historyBoth Fannie and Freddie are what is commonly known as a GSE, or government-sponsored entity. That means that while federal law established Fannie in 1938 to provide home loans backed by the US government, it later sold Fannie in 1968 to investors, making it privately owned. Freddie, established in 1970, formed to create competition for Fannie in the mortgage market. Fannie and Freddie don't lend money. Instead, they undergird the home loan market by purchasing loans made by banks. They repackage the loans into securities to sell to investors. They make various guarantees to investors in the event that homeowners default on their mortgages. This market is called the secondary mortgage market, while primary means the loans to homeowners directly. 

Both Freddie and Fannie trade in the public market with investors owning shares of each of the mortgages rather than shares of the company. In the market, this is called mortgage-backed securities (bonds). If a homeowner defaults on their mortgage, it affects the value of those securities.

Cousin Ginnie, formed in 1968, is a government agency, but performs similar functions to the siblings, except only with government-insured mortgages, like FHA and VA loans—those backed by the Federal Housing Administration. While she does not supply initial funding, she does insure the loans. So, if a borrower with an FHA loan defaults, both the Federal Housing Agency and Ginnie Mae continue to pay out monies due to the investors that bought Ginnie Mae-backed securities.

During the subprime lending crisis in 2008, both Freddie and Fannie lost tremendous value. People that invested in Freddie or Fannie bonds lost tons of money. At that time, in an effort to stabilize the housing industry, the federal government took over as conservator of both Freddie and Fannie, providing money to bail out much of the debt and pay investors. Conservancy means that the government controls the operations of both entities, although it does not own them.

Why does it matter?

Mostly, what happened to Freddie, Fannie and Ginnie matters more to investors than to borrowers. But the healthier Freddie and Fannie are, the greater the variety of loan types available to borrowers. The less Ginnie has to pay out to cover defaulted mortgages, the more money available to loan to first-time borrowers. 

If you’re wondering which loan-type is best for you, contact a qualified mortgage broker to discuss your options.