Along with Fannie Mae, Freddie Mac is a government-sponsored enterprise that buys loans from mortgage lenders, packages them together, and sells them as a mortgage-backed security to investors on the open market. This increases the supply of money available for mortgage lending and increases the money available for new home purchases.

A similar entity called Freddie Mae has a nearly identical structure and function. Because Fannie and Freddie are willing to buy loans from lenders, they allow banks to loan money at rates that are 0.25%-1.5% lower than what a home buyer would otherwise pay. The loans that Fannie and Freddie are willing to support are called conforming loans because the loans conform to Fannie and Freddie's rules. The primary limit on the loans that Fannie and Freddie support is the loans' size. Loans that are too big to conform to Fannie and Freddie limits are also known as jumbo loans.

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