The Federal Housing Finance Agency is a US government agency which oversees several government-backed organizations in the mortgage financing sector. The best known of these are Fannie Mae and Freddie Mac. Two different oversight bodies merged to create the agency in 2008. Later that year the newly-created Federal Housing Finance Agency took a much greater control than before over Fannie Mae and Freddie Mac.
The agency exists to oversee a series of government-sponsored enterprises. These were designed as private companies which had government support. Though there was no formal guarantee, the general belief was that these companies would not be allowed to go out of business and default on payments. This allowed them to get favorable interests rates for their activities.
The most prominent of these enterprises were the Federal Home Loan Mortgage Corporation and the Federal National Mortgage Association. These were better known as Freddie Mac and Fannie Mae, the names being corrupted abbreviations of the official titles. The enterprises' role was to buy the rights to mortgages from banks and then resell them, usually as part of a package, to the investment market. This meant banks could be more certain of getting money back from mortgage loans, in turn making them more willing to lend to home buyers. These two groups were originally overseen by the Office of Federal Housing Enterprise Oversight.
At the same time, there was also a system of Federal Home Loan Banks. Though established by the government, they are owned by around 8,000 other financial institutions. Their purpose is to make low-cost loans available to individual banks to make it easier for them to in turn lend money to the public, both for mortgages and other types of loan. They were originally overseen by the Federal Housing Finance Board.
In July 2008, the two regulatory bodies merged to create the Federal Housing Finance Agency. The merger was partly designed to cut down on redundancy and duplication. The legislation behind the merger also expanded the regulatory powers of the new agency.
Throughout 2008, Freddie Mac and Fannie Mae experienced financial difficulties. This caused fears that they could struggle to perform their roles, which could have caused serious problems with the availability of mortgages to the public. Exercising its newly increased powers, the Federal Housing Finance Agency took both institutions into conservatorship. This was a legal measure giving the agency more direct controls over how the institutions were run. In return, the federal government injected additional funding into Freddie Mac and Fannie Mae to improve their financial stability.
