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Originally published January 12, 2013 at 8:01 PM | Page modified January 13, 2013 at 1:40 AM

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Coming to terms: Fannie Mae and Freddie Mac

Instead of actually loaning money, they operate in the secondary market, buying and guaranteeing qualifying mortgages from lenders so those lenders can turn around and lend more money to more borrowers.

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Q: What are “Fannie Mae” and “Freddie Mac,” and what do they do?

A: Originally known as the Federal National Mortgage Association and the Federal Home Loan Mortgage Corp., Fannie Mae and Freddie Mac are government-sponsored enterprises (GSEs) that support affordable homeownership by making mortgage money available.

Instead of actually loaning money, they operate in the secondary market, buying and guaranteeing qualifying mortgages from lenders so those lenders can turn around and lend more money to more borrowers.

The GSEs then package together bundles of loans and “securitize” them as “mortgage-backed securities” so they can be sold and traded.

Fannie Mae was created in 1938 and Freddie Mac in 1970.

During the financial crisis in 2008, both were put under the conservatorship of the Federal Housing Finance Agency.

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