I like to think of them as the mother and father of the conventional mortgage world. They are essentially helicopter parents that are gatekeepers and rule makers.
What Fannie Mae and Freddie Mac don't do:
Originate mortgage loans (you can't call up Fannie or Freddie and get a loan from them directly)
Service loans (you don't make your mortgage payment to them directly)
What Fannie Mae and Freddie Mac do:
Provide guidance about what lenders/ loan officers can and can't do. They essentially make the lending rules we are required to follow on most conventional loans. If you don't qualify, it may be that you are “breaking” one of their set rules.
Buy loans. This is good news for you as the consumer because it helps keep interest rates low and lenders liquid enough to continue lending money. They either buy the loan and keep it as part of their portfolio OR they package multiple loans together into what is called a Mortgage-Backed Security (MBS). These mortgage-backed securities can then be sold as a way for people to invest their money.
Monitor appraisals through different software and tell us which loan scenarios require appraisals and in which scenarios appraisals are optional.
Provide and maintain the software we use to see if your loan scenario meets their rules (i.e. automated underwriting engines known as Desktop Underwriter for Fannie Mae and Loan Product Advisor for Freddie Mac).
Who controls Fannie and Freddie? The Federal Housing Finance Agency.
Who is profiting from overseeing Fannie and Freddie? The US Treasury. And you, as a potential or current homeowner, because their guidelines make lending products widely available.
Fannie Mae and Freddie Mac adjust lending guidelines occasionally to help mitigate risk, and they each have slightly different rules. All of these changes and differences help keep me on my toes, and always keep my job interesting!