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Fannie Mae and Freddie Mac have been in the news quite a bit over the past few years, so it’s a good time to do a refresher on who they are and what role they play in the real estate market.
If you’re ready to buy a home and are looking to apply for a mortgage, you may want to learn more about these entities and how they can impact how much your mortgage will cost you.
Fannie Mae is the Federal National Mortgage Association. Freddie Mac is the Federal Home Loan Mortgage Corporation. They were originally created to raise homeownership levels and increase the availability of affordable housing.
Fannie and Freddie don’t sell mortgages directly to homeowners. They buy mortgages from lenders, so the lenders can use the money to issue new home mortgages.
In 2008, due to mismanagement resulting in billions of dollars of losses, Fannie and Freddie were taken over by the government.
The main difference between Fannie Mae and Freddie Mac is where they source their mortgages from. While Fannie Mae purchases mortgages from larger banks, Freddie Mac purchases them from smaller financial institutions.
All loans backed by these entities are generally conventional loans, which are mortgages that are not backed by the government. Freddie Mac and Fannie Mae have their own guidelines in terms of mortgage approval and qualifying borrowers.
Fannie Mae and Freddie Mac differ in their lending programs and requirements. For instance, Fannie Mae offers the HomeReady loan, whereby borrowers can’t earn more than 80% of the median income in the area. On the other hand, Freddie Mac offers the Home Possible loan, whereby borrowers can’t earn more than the average income in the area.
Both Fannie Mae and Freddie Mac compete on the secondary mortgage market and provide liquidity to lenders by buying home loans from lenders, then repackaging them into mortgage-backed securities to sell on the secondary mortgage market.
From 2007 to 2010, the subprime mortgage crisis came about as a result of a significant drop in home prices after the bursting of the housing bubble. Many foreclosures and mortgage delinquencies occurred.
The government ended up bailing out both GSEs with approved bailout funds to help get the economy back on track. Since the enterprises assumed this debt, they were in conservatorship with the government. Freddie Mac and Fannie Mae saved the housing market crash, and by 2009, they contributed a significant amount of new mortgages.
Do you have questions about home loans? Are you ready to apply for a mortgage to buy a home? If so, Sammamish Mortgage can help. We are a local mortgage company from Bellevue, Washington, serving the entire state, as well as Oregon, Idaho, and Colorado. We offer many mortgage programs to buyers all over the Pacific Northwest and have been doing so since 1992. Contact us today with any questions you have about mortgages.
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