Real Estate NewsWho Are Fannie Mae and Freddie Mac?
Among the first names rookie home buyers run across in their search for
loans, homes, and agents are Fannie Mae® and Freddie Mac®. What they may not
know is that these two corporations make it possible for many to buy housing
that wouldn"t otherwise have the opportunity.
Fannie Mae and Freddie Mac operate independently each with a preferred
lender base, but both are in the business to make sure that as many consumers
become homeowners as possible. They are the two largest companies in the United
States that purchase almost all of the loans under $227,150. Loans purchased by Freddie and Fannie
are "securitized" by these corporations. That means that they package together loans of similar
term and interest rate into marketable securities known as mortgage backed bonds, which
are then sold and traded on the open market.
With the average
home coming in at about $136,000, and homes for first time homebuyers ranging
about $110,000 or less, you can see that Fannie Mae and Freddie Mac are the
most important loan underwriters in the nation.
Underwriters are the institutions that guarantee that when a mortgage
lender makes a loan that the loan is of favorable enough terms that the terms
of the loan can be met by the borrower, and that the loan can be funded. When a
loan is originated, the mortgage lender will pass the information along to
Fannie Mae or Freddie Mac to see if the companies would be willing to purchase
the loan. An underwriter will not guarantee a loan that is too expensive for
the home buyer to make the payments or on a home that is significantly
overpriced, unsafe, or otherwise unmarketable.
And that is where Fannie Mae and Freddie Mac are at their most helpful.
Both companies are dedicated to making home ownership possible for as many
people as possible, and both actively work to make home loans possible by
working to improve borrowers abilities to qualify, incentifying borrowers, and
instituting programs that enable families to find and purchase lower cost
housing.
Who Are These Guys?
Fannie Mae is a public shareholder-owned company that works to make sure
mortgage money is available for people in communities all across America. The
company does not lend money directly to home buyers, but instead works with
lenders to make sure they don"t run out of mortgage funds.
Created by Congress in 1938 to bolster the housing industry during the
Great Depression, Fannie Mae began as part of the Federal Housing
Administration (FHA) and was authorized to buy only FHA-insured loans to
replenish lenders" supply of money. Then it was known as the Federal National
Mortgage Association (FNMA) until it became better known as Fannie Mae.
Today, Fannie Mae operates under a congressional charter that directs the
company to increase the availability and affordability of homeownership for
low-, moderate-, and middle-income Americans. Fannie Mae is authorized to buy
Federal Housing Administration (FHA) insured mortgages, thereby replenishing
the supply of lendable money.
Freddie Mac is also a publicly held
corporation, chartered by Congress in 1970. Freddie Mac came into being as
the Federal Home Loan Mortgage Corporation (FHLMC) with the mission to create
a continuous flow of funds to mortgage lenders. By supplying lenders with the
money to make mortgages and packaging the mortgages into marketable securities,
Freddie Mac also helps to sustain a stable mortgage credit system which in
turn, reduces the mortgage rates paid by homebuyers. Over the years, Freddie
Mac has been responsible for opening the door to homeownership for one out of
six home buyers in America who would not have qualified otherwise.
By buying single-family home loans from mortgage bankers, savings and loan
associations, commercial banks, credit unions, state and local housing finance
agencies (HFAs), and other financial institutions, Fannie Mae and Freddie Mac
both provide a steady stream of mortgage funds available for lending to
America"s homebuyers.
Neither Fannie Mae nor Freddie Mac receive government backing, but
consumers can thank them for such things as their efforts to make affordable
housing more available through numerous programs, quicker loan approvals and
easier terms for first time or lower income borrowers.
Affordable Housing
Both Fannie Mae and Freddie Mac work behind the scenes of the loan
industry, but they also help consumers directly.
HomePath.com is Fannie Mae"s consumer
site, a home page devoted to educating the consumer about the home buying
process. A terrific project preparation device, HomePath.com covers three basic
areas:
HomeStarterPath allows consumers to compare renting with owning, study
various mortgages, see how much house you can afford, and other helpful
topics.
Step two is HomePurchasePath which helps you begin the process of buying a
home, or assists you if you are already on the way with information on how to
shop for a lender, steps in the mortgage application process, loan closing
activities, and more.
If you are already a homeowner and want to refinance your current mortgage,
you will enjoy clicking on the HomeRefinancePath which is designed to help you
decide when to refinance, steps in the refinance process, how much refinancing
may cost, and other considerations.
One way Freddie Mac helps consumers is in the marketing of foreclosed
homes, an opportunity for many home buyers to find a bargain and get loan
approval in a pleasant one-stop shop atmosphere.
Freddie Mac"s consumer site is HomeSteps.com, and you will hardly be able
to tell it has anything at all to do with the mortgage underwriter.
Deliberately distancing itself from the "f" word - foreclosures - the site
offers a direct route to consumers to search for and finance "affordable"
housing. Although affordable housing may be a euphemism for foreclosed homes,
in reality, they have the presentation of any other Realtor listing right out
of the local MLS. The difference is that you can search for them in Freddie
Mac"s proprietary database.
Another advantage is special financing and in some cases, buyer incentives.
The homes are cleaned up with up to $5,000 in improvements then priced to sell
in competitive markets. Not only can buyers have access to these "bargain"
homes, they can be purchased through loans with competitive interest rates,
lower title and escrow fees, and no mortgage insurance. Only 5% down is
required on all available homes.
Quicker Loan Approvals
Two years ago the mortgage industry was revolutionized by the development
of the first automated systems to underwrite loans and provide mortgage
approval, reducing loan approval waiting periods from days to mere hours and ev
en minutes. These systems were developed by Fannie Mae and Freddie Mac, and are
recognized by most banks and mortgage lenders.
Because consumers can act as their own loan officers, they can save
significant dollars in the process.
One example is iQualify.com(tm),
through which Fannie Mae shares its state of the art technology in electronic
underwriting services. What that means to you, the consumer, is the difference
between loan qualification and loan approval - in as little as four minutes.
The first Internet site to provide on-line loan approvals, iQualify.com has
taken the loan origination experience to new levels of service for the
consumer, enabling the consumer to shop with confidence for the home of their
dreams and feel good about the lender and mortgage decisions they have made.
Friendly competition
Both Fannie Mae and Freddie Mac sponsor foundations that perform outreaches
to communities in the realm of housing and community development through
housing programs, grants and home buying information and facilitation. Their
web sites are an extension of these services.
Although Freddie Mac and Fannie Mae have the same charters, Congressional
mandates and regulatory structures, the two companies enjoy a friendly
competition that ensures that the benefits of the secondary market are passed
on to homebuyers.