Fannie & Freddie

To inform, to amuse, and to help you make money

Q

What are “Fannie Mae” and “Freddie Mac”?

— S.D., Wilkes-Barre, Pennsylvania

A

Those nicknames represent the Federal National Mortgage Association and the Federal Home Loan Mortgage Corp., organizations created by Congress in 1938 and 1970, respectively. Both are designed to help ensure that the U.S. has a stable supply of affordable mortgages.

They provide funding to lenders and then buy many mortgages from lenders, with the proceeds from those sales allowing lenders to issue more mortgages. This keeps mortgages available for homebuyers.

The Federal Housing Finance Agency explains: “By packaging mortgages into [mortgage-backed securities] and guaranteeing the timely payment of principal and interest on the underlying mortgages, Fannie Mae and Freddie Mac attract to the secondary mortgage market investors who might not otherwise invest in mortgages, thereby expanding the pool of funds available for housing. That makes the secondary mortgage market more liquid and helps lower the interest rates paid by homeowners and other mortgage borrowers.”

Q

How much of my income should I be saving and investing for retirement?

— H.L., Lexington, Kentucky

A

An old rule of thumb has been to sock away 10% of your pretax income, but that doesn't serve everyone equally well. For example, if you haven't been saving as much as you should have for retirement, you might need to start saving 15%, or even 20% or more.

A financial planner can help you draft a solid retirement plan. (Find a fee-only one near you at NAPFA.org.) Online calculators such as those at Calculator.net and Fool.com/calculators can provide some guidance, too. It's also smart to learn what you can expect from Social Security — do so by setting up a “My Social Security” account at SSA.gov.