Government Sponsored Enterprises

Fannie Mae and Freddie Mac were created by Congress to perform an important role in the nation’s housing finance system – to provide liquidity, stability and affordability to the mortgage market. The Enterprises provide liquidity (ready access to funds on reasonable terms) to the thousands of banks, savings and loans, and mortgage companies that make loans to finance housing. Fannie Mae and Freddie Mac buy mortgages from lenders and either hold these mortgages in their portfolios or package the loans into mortgage-backed securities (MBS) that are sold to the public. Lenders use the cash raised by selling mortgages to the Enterprises to engage in further lending. The Enterprises’ purchases help ensure that individuals and families that buy homes and investors that purchase apartment buildings and other multifamily dwellings have a continuous, stable supply of mortgage money.

By packaging mortgages into MBS and guaranteeing the timely payment of principal and interest on the underlying mortgages, Fannie Mae and Freddie Mac attract to the secondary mortgage market investors who might not otherwise invest in mortgages, thereby expanding the pool of funds available for housing. That makes the secondary mortgage market more liquid and helps lower the interest rates paid by homeowners and other mortgage borrowers.

Fannie Mae and Freddie Mac also can help stabilize mortgage markets and protect housing during extraordinary periods when stress or turmoil in the broader financial system threaten the economy. Further, a majority of the mortgages purchased by Fannie Mae and Freddie Mac finance dwelling units that are affordable to low- and moderate-income households, or are located in geographic areas that the Department of Housing and Urban Development believes are underserved. The Enterprises’ support for mortgage lending that finances affordable housing reduces the cost of such borrowing.

The FHLB System was created by the Federal Home Loan Bank Act of 1932 as a government sponsored enterprise to support mortgage lending and related community investment. It is composed of 12 FHLBanks, more than 8000 member financial institutions, and the System’s fiscal agent, the Office of Finance. Each FHLBank is a separate, government-chartered, member-owned corporation. The System is under the supervision of its mission and safety and soundness regulator, the Federal Home Finance Board.

The System provides its members with a source of funding for mortgages and asset-liability management; liquidity for a member's short-term needs; and additional funds for housing finance and community development. The FHLBanks provide long- and short-term advances (loans) to their members. Advances are primarily collateralized by residential mortgage loans, and government and agency securities. Community financial institutions may pledge small business, small farm, and small agri-business loans as collateral for advances. Advances are priced at a small spread over comparable U.S. Department of the Treasury obligations.


Fannie Mae

Freddie Mac

The FHLBanks fund themselves principally by issuing consolidated obligations of the System in the public capital markets through the Office of Finance, which acts as the FHLBanks' agent. Although each FHLBank is a separate corporate entity with its own management and board of directors, the FHLBanks are jointly and severally liable for all System consolidated obligation debt. Consolidated obligations consist of bonds (original maturity of one year or longer) and discount notes (original maturity of less than one year). Consolidated obligations are not guaranteed or insured by the federal government. However, the FHLBanks’ status as a government-sponsored enterprise accords certain privileges and enables the FHLBanks to raise funds at rates slightly above comparable obligations issued by the U.S. Department of the Treasury.

FHLBank Districts
Federal Home Loan Bank Act of 1932

Fannie Mae was first chartered by the U.S. government in 1938 to help ensure a reliable and affordable supply of mortage funds throughout the country. Today it is a shareholder-owned company that operates under a congressional charter.
Fannie Mae Web Site
Fannie Mae Charter Act

Freddie Mac was chartered by Congress in 1970 as a private company to likewise help ensure a reliable and affordable supply of mortgage funds throughout the country. Today is is a shareholder-owned company that operates under a congressional charter.
Freddie Mac Web Site
Freddie Mac Charter Act