Fannie Mae and Freddie Mac

When a bank gives you a 30-year mortgage, the bank doesn't usually keep that loan on its books. Within weeks of closing, most conforming mortgages are sold to Fannie Mae or Freddie Mac. They bundle thousands of similar mortgages into bonds (mortgage-backed securities) and sell those bonds to pension funds, insurance companies, and the Federal Reserve. The cash from those bond sales gets recycled into new mortgages.

This is why the U.S. has cheap 30-year fixed-rate mortgages. Without Fannie and Freddie, no individual bank would commit to a 30-year fixed rate — too much interest-rate risk. With them, the bank originates the loan and offloads the risk; investors who want long-duration fixed-income exposure absorb it.

The two are functionally similar but not identical. Fannie Mae (Federal National Mortgage Association) was founded in 1938 and primarily buys mortgages from large commercial banks. Freddie Mac (Federal Home Loan Mortgage Corporation) was founded in 1970 and primarily buys from smaller savings banks and credit unions. Both set similar standards for what qualifies as a 'conforming' loan — under the loan limit ($832,750 baseline / $1,249,125 high-cost ceiling in 2026 per FHFA), to a borrower meeting their credit and income standards.

Loans that don't fit Fannie/Freddie standards (jumbo, non-QM, investor) stay on bank balance sheets or are sold to private securitization. Those typically have slightly higher rates because the lender bears more risk.

Both went into government conservatorship during the 2008 financial crisis and remain there. Their decisions about loan standards effectively set the rules for the U.S. mortgage market.