Mortgage giants and how they work

What are Fannie Mae and Freddie Mac?

They are publicly traded mortgage finance companies created by the federal government.

Fannie Mae is the common name for the Federal National Mortgage Assn., based in Washington. Freddie Mac is the common name for the Federal Home Loan Mortgage Corp., based in McLean, Va.

Why are they so important?

They are the two largest providers of financing for U.S. home loans. They own or guarantee almost half of the $12 trillion in outstanding U.S. home loans.

How do they work?

Fannie Mae and Freddie Mac buy mortgages from banks, savings and loans and other mortgage lenders. They package some of those home loans into mortgage-backed securities, which then are sold as guaranteed investments.

Who owns Fannie Mae and Freddie Mac?

Investors. The companies’ shares trade on the New York Stock Exchange.

How much have their stocks fallen?

Compared with a year ago, Fannie Mae’s market value is down 84% and Freddie Mac’s has dropped 87%.

Could the government take over the companies?

It’s possible. Under a 1992 law, if the Office of Federal Housing Enterprise Oversight concludes that either Fannie Mae or Freddie Mac is “critically undercapitalized,” the agency can place the company into government conservatorship.