All the Macs and Maes

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Freddie Mac and Fannie Mae have been in the headlines recently. But they’re just part of the Mac and Mae governmental family.

Here’s an overview of Fannie, Freddie and other relatives.

Fannie Mae (Federal National Mortgage Association) came along in 1938. Her primary job: to purchase, hold, or sell mortgage loans originated by private lenders and insured by the Federal Housing Administration. After World War II, Fannie Mae’s authority was expanded to include home mortgages guaranteed by the Veteran’s Administration.

In essence, Fannie provided local banks with federal money to finance home mortgages, leading to the development of the secondary mortgage market.

In 1968, Fannie Mae was split into two parts, privatized and transformed into a Government Sponsored Enterprise (GSE) capable of issuing mortgage backed securities. As a GSE, Fannie is owned and operated by shareholders, but protected financially by the support of the US government. You can buy Fannie Mae stock, which is listed on the New York exchange under the ticker symbol FNM.

Fannie does not issue mortgages to homeowners. Instead, she’s considered a financial services company. She provides financing, credit guarantees, technology and services to mortgage lenders, freeing capital so the lenders can make additional loans.

Farmer Mac (Federal Agricultural Mortgage Corporation) popped up in 1987. He is stockholder-owned, publicly-traded and chartered by the US government. He serves as a secondary market for agricultural real estate and rural housing mortgage loans guaranteed by the United States Department of Agriculture.

Like the other Macs and Maes, Farmer Mac purchases loans, securitizes them into Farmer Mac Guaranteed Securities, and guarantees the timely payment of principal and interest. Farmer Mac can keep the Guaranteed Securities or sell them.

Freddie Mac (Federal Home Mortgage Corporation) was born in 1970. Freddie is a GSE like Fannie. He was created to prevent Fannie from monopolizing the secondary mortgage market, and works in a similar fashion.

Freddie can purchase mortgages from lenders by issuing a mortgage-related security that you can buy or sell. Freddie guarantees the payment of principal and interest on the securities. Freddie also buys mortgage loans and mortgage-related securities and holds them. These purchases are financed by issuing debt.

Like Fannie, Freddie enjoys a combination of private enterprise and public backing. Other perks include access to a line of credit through the US Treasury, exemption from state and local income taxes and exemption from SEC oversight.

Ginnie Mae (Government National Mortgage Association) was split off from the Federal National Mortgage Association in 1968, and established as a government-owned corporation within the Department of Housing and Urban Development.

Ginnie’s job is to provide liquidity for mortgage investments, backed by the full faith and credit of the US government. She does this by guaranteeing, or insuring, that approved issuers of qualifying loans will make timely principal and interest payments on mortgage-backed securities.

The issuers are lenders such as mortgage bankers, savings and loans, and commercial banks. They pool or assemble mortgages and convert them into securities backed by the mortgages. For a fee, Ginnie enters into a "Guaranty Agreement" with the lenders, and agrees to guarantee timely principal and interest as required by the terms of the securities. The issuer agrees to remit in a timely manner all payments required by the terms of the securities.

Loans that qualify for Ginnie’s program include those issued by or guaranteed by the Federal Housing Administration, the Department of Veterans Affairs, the Department of Agriculture’s Rural Housing Service and the Department of Housing and Urban Development’s Office of Public and Indian Housing.

Sallie Mae (Student Loan Marketing Association) was once a member of the Mae and Mac family, but was privatized in 1996, and is now known as SLM Corporation.

As a private company, Sallie provides federal and private student loans, including consolidation loans, for undergraduate and graduate students, and administers college savings plans.

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