How Fannie Mae and Freddie Mac make money And why the value on one loan reaches every line of it

Fannie Mae (the Federal National Mortgage Association) and Freddie Mac (the Federal Home Loan Mortgage Corporation) are companies created by Congress and owned by stockholders. Since September 2008 both have been in conservatorship, which means the government runs them. The Federal Housing Finance Agency (FHFA) is both their regulator and their conservator, and since March 17, 2025 the FHFA Director has chaired Fannie Mae’s board.^{1, 3}

The Enterprises do not make loans to borrowers. A lender makes the loan and sells it to one of them. The Enterprise then either bundles it with other loans into a mortgage-backed security (MBS) that it guarantees, or keeps it in its own retained portfolio. Fannie Mae owned or guaranteed about 24% of U.S. single-family mortgage debt and 22% of multifamily debt as of March 31, 2026, and its guaranty book stood at $4.14T at June 30, 2026: $3.59T single-family conventional and $548B multifamily.¹ In the first half of 2026 it provided $241.2B of liquidity, financing about 802,000 purchases, refinances and rental units.¹

Ginnie Mae sits outside this picture. It guarantees securities backed by FHA, VA and USDA loans and does not buy conventional loans. Everything below concerns conventional conforming loans.

When a lender runs a loan through Fannie Mae’s Desktop Underwriter (DU) or Freddie Mac’s Loan Product Advisor (LPA), the system answers two questions: does the borrower qualify, and what does the property need? On some loans DU offers Value Acceptance, which Fannie Mae used to call an appraisal waiver. Fannie Mae then accepts the lender’s estimate of value with no appraisal. Under Selling Guide B4-1.4-10, updated June 3, 2026, an earlier appraisal of the property generally has to exist in Fannie Mae’s Collateral Underwriter data, and lenders may not pick which offers to take based on a loan’s risk.^{5, 6} Freddie Mac’s version is ACE (automated collateral evaluation). ACE+ PDR, launched in July 2022, adds a property data report from someone who visits the home.⁴⁸ Freddie Mac’s Bulletin 2024-16 raised purchase LTV limits to program maximums, and the ACE purchase limit went from 80% to 90%.^{11, 12, 13}

When a loan does need an appraisal, the report goes into the Uniform Collateral Data Portal (UCDP), where Fannie Mae’s Collateral Underwriter (CU) or Freddie Mac’s Loan Collateral Advisor (LCA) scores it for risk. That score helps decide whether the lender is released from its promise about the value, which chapter 9 covers. The new report format, UAD 3.6 with the redesigned URAR, replaces the 1004, 1073 and 2055 forms for loans sold to the Enterprises. Lenders could start using it on Jan. 26, 2026, and it becomes required on Nov. 2, 2026. The date that counts is when the report is first sent to UCDP: a report finished before Nov. 2 but first sent on or after that date must use UAD 3.6.^{35, 36, 42}

The Enterprises report savings from the alternatives. Freddie Mac says ACE saved borrowers an average fee of about $600, more than $2.3B in total as of September 2025, and closed purchases about 14 days faster in Q2 2025.¹¹ Fannie Mae estimates that appraisal alternatives have saved borrowers about $3B in closing costs since 2018, figured at about $550 per loan.² Both limit offers to loans their models rate as low collateral risk.

Fannie Mae counts its guaranty fees as interest income, because the loans sit in trusts that appear on its balance sheet. In Q2 2026 the base guaranty fee brought in $4,290M, not counting TCCA. The TCCA portion was $851M, and $905M came from upfront fees that are recognized a little at a time over each loan’s life. Together that is $6,046M from guaranteeing loans, about 80% of net revenues, which matches what the CFO told analysts.^{1, 25} When a loan pays off early, the part of its upfront fee not yet recognized is booked at once, so that line rises when refinancing picks up. Fannie Mae’s own portfolio of loans and cash investments added $1,608M, hedge accounting subtracted $161M, and other fees added $72M.

The provision for credit losses, money set aside for expected loan losses, was $485M, administrative expenses $811M, and legislative assessments $934M, made up of the $851M TCCA fee, $31M for FHFA’s budget and $52M for the affordable housing funds. Credit enhancement expense, what Fannie Mae paid investors and insurers to take on part of its risk, was $361M. After $1,007M of federal income tax, net income was $3,982M: $3,278M from single-family and $704M from multifamily. First-half net income was $7.7B, and net worth reached $116.5B at June 30, 2026.^{1, 2}

Freddie Mac reported Q2 2026 net income of $3.8B ($3,838M), up 61% from a year earlier, on net revenues of $6.0B, up 1%. Single-family earned $3,277M and multifamily $561M, and net worth rose 20% to $78B. Coverage of the earnings call attributed most of the jump to Freddie Mac releasing money it had set aside for losses, after adding to that reserve a year earlier.^{7, 9, 26} Freddie Mac bought $110B of single-family loans in the quarter; Fannie Mae bought $111B.^{1, 9}

Every revenue line and risk layer in the last three chapters depends on loan-to-value, and LTV is only as accurate as the value behind it. When the value is too high, the fee, the insurance requirement, the capital held and the price of risk sold all start from a number that understates the risk. The Enterprise usually finds out only if the borrower defaults and the home sells for what the market will pay. Chapter 11 estimates what that risk costs the Enterprises and what reducing it could mean for borrowers.

Purchases and refinances work differently. On a purchase, LTV is figured on the lower of the sale price or the appraised value, so an appraisal above the contract price does not lower the LTV. Overvaluation hurts a purchase loan when the appraisal confirms a contract price that is already above market value. This is called contract price confirmation. FHFA working paper 18-01 found similar overvaluation in appraisals ordered through appraisal management companies (AMCs) and those that were not, and found AMC appraisals more likely to land on the contract price.¹⁸ Refinances have no sale price, so the value sets the LTV directly. An inflated value there makes the LTV look lower and can also let the borrower take out a bigger loan.

FHFA’s own research points the same way. A staff working paper by Kelly on appraisals, automated valuation models and default found that more precise valuations go with a lower chance of default. The paper also cites GAO and HUD research on FHA loans showing that the chance of default rises sharply with LTV up to about 96% and then levels off.¹⁷ In 2014 the FHFA Inspector General made 14 recommendations on using UCDP appraisal data to reduce the risk of loss, and FHFA agreed to them. Its 2018 white paper reviewed the Enterprises’ appraisal waivers and their risks.^{19, 20}

When a lender sells a loan, it makes formal promises, called representations and warranties, including that the property value was supported. If the Enterprise later finds the value was wrong, it can ask the lender to buy the loan back, and the loss stays with the lender. Relief means the Enterprise gives up that right for the value. Fannie Mae grants it with Value Acceptance offers. On appraisals, relief requires a Collateral Underwriter risk score of 2.5 or below, under Selling Guide A2-2-06.^{46, 37} Freddie Mac shows lenders in Loan Collateral Advisor whether an appraised loan is eligible for collateral relief.⁴⁷

For the Enterprise, relief is a trade-off. Lenders get certainty and speed, and in return the Enterprise owns any loss caused by a wrong value on that loan. So the accuracy of the models that grant relief, and of the data they learn from, shows up in the Enterprise’s own results.

FHFA tells the Enterprises to price the guarantee as if they were private companies earning a return on the capital each loan requires. Its 2014 analysis broke an illustrative fee into expected credit losses of about 4 bps, overhead of about 7 bps and the 10 bps TCCA fee, plus a capital charge of 28 bps to 115 bps, depending on how much capital a loan needed and what return was assumed. FHFA called the capital piece by far the largest. The same analysis showed the capital required and the fee charged both rising as LTV rises and credit scores fall.¹⁴

FHFA has not published a current version of that breakdown. The chart below builds one from Fannie Mae’s Q2 2026 results: the provision for credit losses stands in for expected losses, credit enhancement expense for the cost of sharing risk, and administrative expense for overhead. The capital charge is Milliman’s estimate of required single-family capital multiplied by a return you choose. Each quarterly figure is multiplied by four and divided by the $3.59T single-family book.^{1, 27}

A loan with no risk is a thought experiment. Lending always carries risk, and the Enterprises exist to price and carry it. The useful question is how much of the risk comes from uncertainty about what the collateral is worth, and how much of that better valuation can remove. Neither Enterprise nor FHFA has published an estimate.

Risk also sets the terms. Upfront LLPAs exist to charge riskier loans more. On the Sept. 30, 2026 purchase grid they reach 2.875% of the loan amount, about $10,077 on the average new loan.⁴ Mortgage insurers price premiums on the same two inputs, LTV and credit score, and Fannie Mae’s own adjustments for reduced MI coverage use the same kind of grid.¹⁴ The Enterprises also use LTV limits to decide who qualifies, such as the 80% cap on cash-out refinances. Each of these is set from LTV, so each is only as fair as the value behind it.

Most purchase appraisals land at or above the contract price. In FHFA’s appraisal data, 15.2% of purchase appraisals came in below the contract price in 2021, up from 8.4% in 2013, so about 85% landed at or above it.⁴⁵ FHFA working paper 18-01 found appraisals matched the contract price exactly 23% to 26% of the time and came in above the price by an average of about 2.2% to 2.4%.¹⁸ Kelly’s FHFA paper found that a gap between the sale price and the estimated value raised delinquency and foreclosure risk; in one simulation, an automated value 10% below the price raised the predicted five-year claim rate by about 6.5%. That study used FHA loans from 2000 to 2002.¹⁷

UAD 3.6 leaves the conclusion to the appraiser and standardizes how the conclusion and its support are recorded, so the Enterprises’ review models can read and compare every report. Freddie Mac describes the redesign as replacing free-form commentary addenda with standardized data fields and set answer lists, and rewriting the condition and quality definitions so ratings are easier to tell apart. Submissions also pass automated checks for completeness, valid formats and reasonableness before delivery.⁴² Neither Enterprise has published an estimate of how much the redesign will reduce defects or losses.

Fannie Mae’s single-family serious delinquency (SDQ) rate, the share of loans 90 or more days late or in foreclosure, was 0.58% at June 30, 2026, unchanged from Dec. 31, 2025. Fannie Mae took back 2,389 homes through foreclosure (real estate owned, or REO) in the first half of 2026, up from 1,264 a year earlier. Those homes sold for 111% of the unpaid loan balance, down from 143%; after repair costs, the figures were 82% and 83%. On multifamily, reserves rose because of weaker property values and slower growth in net operating income (NOI), and the 10-Q cites a 20.0% decline in multifamily values from the Q2 2022 peak.¹

The kinds of loans being bought are also changing a little. Fannie Mae removed its 620 minimum credit score for DU loans effective November 2025, and loans below 620 rose to 2% of Q2 2026 acquisitions. VantageScore 4.0 is now allowed; Lender Letter LL-2026-06 (Sept. 9, 2026) extended it to all lenders, and the Sept. 30, 2026 LLPA Matrix folded it into the same grids as Classic FICO, with FICO 10T to follow. Acquisitions of High LTV Refinance loans are suspended.^{1, 4} Q2 2026 acquisitions were 65% purchase and 35% refinance, with an average LTV at origination of 77% and an average credit score of 756.¹