Fannie Mae and Freddie Mac – What Are They?

These companies are mentioned so much in the Real Estate Industry, sometimes we take for granted that not everyone knows what they do and why they do it. Here’s a brief overview to fill in the gaps.

A considerable number of homebuyers don’t have the money outright to buy a house in cash, and therefore must take out a loan. In this case, a Realtor can make some recommendations as to where to look for a loan, and a lot of times it’s going to be the buyer’s local, trusted bank. The Realtor might even go so far as to take them to the bank and help the process along. But what the Realtor doesn’t always know is that their local bank is playing a shorter game than 30 years.

This is where companies like Fannie Mae and Freddie Mac come into play. The bank makes a loan for a 30-year mortgage and sells it to these companies, getting back their money up front. The local bank can then use this money to make and sell another loan, trusting that the slow collection of the loan money is being handled by a larger company playing a longer game.

This is all part of the Real Estate ecosystem: the local banks don’t run out of money, but they get the assurance that buyers will still take out loans with them. Knowing the market adds value to a Realtor’s clients, and sometimes even the most basic knowledge can mean the difference between a flop and a trusted connection.