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What Is Freddie Mac Mortgage

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What Is Freddie Macfederal Home Loan Mortgage Corp

Freddie Mac and Your Mortgage

The Federal Home Loan Mortgage Corp. is a stockholder-owned, government-sponsored enterprise chartered by Congress in 1970 to keep money flowing to mortgage lenders, which in turn supports homeownership and rental housing for middle-income Americans. The FHLMC, familiarly known as Freddie Mac, purchases, guarantees, and securitizes home loans and is a mainstay of the secondary mortgage market.

Freddie Mac And Mortgage

While it should be made apparent to borrowers sometime during the mortgage process, many individuals, in fact, dont realize that the conventional loan they are paying back is actually owned by Fannie Mae or Freddie Macnot the bank or the mortgage company who provided the loan. If youre unsure, you should go online to see who owns it.

This whole process can seem perplexing at first until you understand the underlying reasons behind increasing market liquidity and why lenders rely on the financial power of enterprises like Freddie Mac. By funding the lender and creating mortgage-backed securities, Freddie helps provide the basis for profit and stability within the lending sector.

When Freddie Mac purchases a mortgage loan from an approved lender, three things happen:

  • Freddie takes ownership of the note that is secured by the collateral, which is the homel. Freddies business interest is in owning the notenot in owning the property.
  • Because the lender has been made whole from this transaction and removed the cost of the loan from its balance sheet, the lender now has fresh capital with which to continue funding additional mortgages with.
  • The lender typically continues to service the loan . The lender then makes payments to the investor. Freddie does not service loans. That’s why ownership of the loan is generally transparent to the borrower.
  • How Fannie Mae & Freddie Mac Help You Get A Mortgage

    Fannie Mae and Freddie Mac help you get a mortgage by providing funds to mortgage lenders and setting guidelines for a wide variety of mortgage loan options, which meet the needs of homebuyers and homeowners. Below is a brief overview of some of the features of Fannie Mae and Freddie Mac home loans loans that make them so popular:

    Low-down-payment options. Homebuyers only need a 3% down payment to buy a home, or 3% equity to refinance a home they already own. Homebuyers can keep their cash in the bank, and homeowners can refinance at a lower rate even if they have very little equity built up.

    Fixed-rate mortgage terms as long as 30 years. A longer term with a fixed rate gives homeowners the security of a steady, predictable mortgage payment.

    Financing for second homes and investment properties. Most government-backed loans require you to buy a home as your primary residence. Fannie Mae and Freddie Mac provide mortgage programs for homebuyers to purchase and refinance vacation homes and rental properties.

    Appraisal waiver eligibility. Borrowers with large down payments and plenty of equity may be eligible for a property inspection waiver, which allows them to avoid the expense and hassle of a home appraisal. Government-backed loan programs dont offer any appraisal waiver options if youre buying a home.

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    Fannie Mae And Freddie Mac: Overview

    In 1938, the government created Fannie Mae, or the Federal National Mortgage Association, amid the struggles of the Great Depression. The goal of Fannie Mae was to create a more reliable source of funding for homebuyers, opening doors for more Americans, figuratively and literally.

    Freddie Mac, short for the Federal Home Loan Mortgage Corporation, came on the scene through an act of Congress in 1970, with a similar purpose. Both Fannie Mae and Freddie Mac now operate under the conservatorship of the Federal Housing Finance Agency .

    Fannie Mae and Freddie Mac help facilitate access to long-term, fixed-rate mortgages with installment payments. They do this by buying mortgages from banks and other lenders, giving the lenders more capital to continue creating loans for more borrowers. Fannie Mae and Freddie Mac typically package the loans they buy into mortgage-backed securities in the secondary mortgage market.

    Both GSEs played a role in the Great Recession. In the years leading up to the housing market collapse, they backed or owned numerous subprime mortgages. When the housing bubble burst, economic pressures and large losses led to the need for the government to step in with bail-out funding. As a result, Fannie Mae and Freddie Mac were able to help usher the housing market toward recovery.

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    Freddie Mac’s Mortgage Rate Survey Explained

    Freddie Mac reports mortgage rates trending higher

    Freddie Macs Primary Mortgage Market Survey is the longest running weekly survey of mortgage interest rates in the United States. Since Freddie Mac launched its survey in 1971, others have begun collecting and reporting mortgage rate information.

    For example, Bankrate and Zillow report weekly average 30-year fixed-rate mortgage rates, and the Federal Housing Finance Agency provides a Monthly Interest Rate Survey , which includes annual mortgage interest rate data back to 1963. The various survey measures usually show the same general trend in mortgage rates, but there are differences from week to week, and in some cases, persistent differences in the level of rates reported by various sources.

    Because the PMMS is widely covered across the industry and in the media, various stakeholders, as well as consumers, are often interested in understanding why the PMMS rates sometimes differ from other surveys, other reports, or the rates their lender is quoting on the day Freddie Mac releases its survey. Freddie Mac is also interested in understanding why various measures of mortgage rates can differ and ensuring that it maintains the accuracy and reliability of the PMMS.

    This Research Note considers differences in the PMMS and the Mortgage Bankers Associations Weekly Applications Survey , another widely tracked survey for the mortgage market.

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    Privatization And The Birth Of Ginnie Mae And Freddie Mac

    In the ensuing years, Fannie Mae continued to stabilize the market and create a growing, satisfied chain of lenders and homeowners. However, in the late 1960s, a couple things happened in relatively quick succession that reshuffled the original concept. First, due to certain fiscal priorities, the government removed Fannie from the federal budget in 1968 and converted it to a privately held corporation responsible to its shareholders. It had already been made a mixed-use company by an act of Congress in 1954 and now it would be fully privatized.

    In doing so, they also created a specific mortgage entity for backing and buying government-backed loans such as FHA, VA or USDA loans. The Government National Mortgage Association, or Ginnie Mae. These loans are 100% insured by the federal government.

    Then in 1970, Congress decided Fannie needed some in-market competition so they came up with the FHLMCFreddie Mac. Similar in scope and purpose, there have always existed some crucial differences between these two entities. While Fannie Mae focused on buying up mortgages from the largest banks in the land, Freddie Mac was enlisted to purchase retail mortgages from many of the smaller community bankssometimes called thrift banks and savings & loans.

    Mortgage Rates Remain High

    Mortgage rates have been volatile this year thanks inflation and the Federal Reserve.

    While the Fed does not directly set mortgage rates, it sets the federal funds rate . When that rate increases, rates on consumer debt like mortgages increase too. Concerns about inflation have led the Fed to hike the federal funds rate from 0% in March to 4% in November.

    Rates were near all-time lows at the start of the year, so some increase was expected. However, the speed of the increases took the housing market by surprise. The 30-year rate began the year at 3.22% and is currently sitting at 6.58%, more than double the starting rate.

    Today’s higher rates are in stark contrast to the last two years when mortgage rates plummeted amid the COVID-19 pandemic. The average 30-year mortgage rate in 2022 was 2.96%. So far this year, the 30-year rate is averaging slightly above 5%.

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    Similarities Between Freddie Mac And Fannie Mae

    Both Fannie Mae and Freddie Mac are nationally recognized, federally backed mortgage institutions committed to providing the U.S. housing market with liquidity, stability and affordability. This mission for both government-sponsored enterprises, or GSEs, is crucial to the nations housing finance system.

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    What Is Freddie Mac

    What Does Freddie Mac Do?

    Terri Williams is an expert in mortgages, real estate, and home buying. As a journalist she’s covered the “homes” corner of personal finance for more than a decade, with bylines in scores of publications, including Realtor.com, Bob Vila, Yahoo, Time/Next Advisor, The San Francisco Chronicle, Real Homes, and Apartment Therapy.

    Freddie Mac is a government-owned corporation that buys mortgages and packages them into mortgage-backed securities. Its official title is the Federal Home Loan Mortgage Corporation or FHLMC.

    • Freddie Mac makes mortgage lending less risky.
    • It expands the pool of buyers by making homeownership more affordable.
    • Freddie Mac creates a standardized mortgage-lending process.
    • It helps to maintain a robust housing marketing.

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    Impacts Of Freddie Mac

    Freddie Mac has enormous influence on the U.S. mortgage business. During 2021, Freddie Mack financed nearly 1.4 million single-family home purchases. It also helped refinance mortgages for 2.9 million existing homeowners. Freddie Mac is also a player in multifamily housing, financing more than 650,000 units during 2021.

    The organizations charter is to provide liquidity, stability and affordability in the market. One way it does this is by standardizing the requirements for loans that it will purchase for resale. Lenders know that if they make loans that if conform to Freddie Macs rules, they will have no problem quickly recouping the money by selling the loans, enabling them to make more loans. Freddie Macs standards encourage investors to buy the packages of mortgages it assembles, and the overall effect is to make it easier and cheaper for homeowners to borrow money to buy homes.

    Freddie Macs influence goes beyond the secondary market for mortgage securities, however.

    For instance, Freddie Mac doesnt sell all the loans it purchases. Some it retains and collects payments from borrowers, earning money on the interest and fees. Freddie Mac has actively worked with borrowers affected by the pandemic to help them stay current on its loans and in their homes. As a result, one of its most popular consumer services is its free online Loan Lookup Tool. This lets borrowers see if their loan is owned by Freddie Mac so they know who to contact for help.

    How Are Fannie And Freddie Doing Today

    Much better, but both companies still have a very long way to go. Thanks in part to rising home prices, Fannie Mae in August posted its largest quarterly profit since the crisis began, marking its second consecutive profitable quarter. Meanwhile, Freddie Mac reported a quarterly profit for the fifth time since the crisis began.

    The improved finances at both companies led the U.S. Treasury Department in August to rework the terms of the government bailout. Under the previous agreement, Fannie and Freddie drew money from the Treasury Department as needed to bolster its capital reserves. In exchange, the companies issued preferred stock to the government on which they paid a mandatory 10 percent dividend. Under the new rules, Treasury will simply claim all of Fannie and Freddies profits at the end of each quarter and provide capital when necessary in the event of a quarterly loss.

    While the worst of the crisis appears to be over, Fannie and Freddie are a long way from repaying their debt. According to Moodys Analytics, it could take the companies 15 years to pay back taxpayers in full. Meanwhile, as the government continues to play a central role in the day-to-day operations of Fannie and Freddie, the continued uncertainty has led many key staff to leave and has caused an underinvestment in necessary infrastructure and systems.

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    Mortgage Rates Maintain Their Ascent

    Mortgage rates rose again as markets continue to manage the prospect of more aggressive monetary policy due to elevated inflation. Not only are mortgage rates rising but the dispersion of rates has increased, suggesting that borrowers can meaningfully benefit from shopping around for a better rate. Our research indicates that borrowers could save an average of $1,500 over the life of a loan by getting one additional rate quote and an average of about $3,000 if they get five quotes.

    Average commitment rates should be reported along with average fees and points to reflect the total upfront cost of obtaining the mortgage. Visit the following link for the Definitions. Borrowers may still pay closing costs which are not included in the survey.

    How Freddie Mac Impacts Your Mortgage Eligibility

    freddie

    Borrowers think of a mortgage as a source of debt. But in the secondary market, a mortgage is actually an asset that can be bought and sold.

    Buyers in the secondary market want to make sure the mortgages they purchase represent as little risk as possible. And one way Freddie Mac and Fannie Mae reduce risk is by setting guidelines for the types of loans theyll purchase and sell.

    Those guidelines, which run more than 2,000 pages in total, set the standard for which mortgages are considered a safe investment. Borrowers often need to meet them to be considered eligible applicants.

    In other words, Freddie Mac and Fannie Mae play a big role in determining who gets a home loan and who doesnt.

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    How Are Fannie Mae And Freddie Mac Different

    While Fannie Mae was created before Freddie Mac, the differences don’t stop there. The two corporations each purchase their loans from different sources Fannie Mae buys them from large banks and credit unions while Freddie Mac buys them from smaller banks and credit unions.

    Both entities purchase and sell conventional loans. And although Fannie Mae and Freddie Mac are each backed by the federal government, the loans themselves are not. The conventional loans are backed by private lenders. So, you would not apply directly with Fannie Mae or Freddie Mac for a mortgage, but the mortgage you get may be purchased by either of the companies.

    The loans can also be conforming or non-conforming, meaning they’d adhere to, or conform to, Fannie Mae and Freddie Mac’s funding criteria and wouldn’t exceed a certain amount, which changes each year for 2022, the limit is $647,200 unless you live in a state with a higher cost of living that states otherwise. That said, jumbo loans are an example of a non-conforming loan that can be used to borrow more money than the aforementioned limit.

    In terms of loan programs, Fannie Mae offers the HomeReady® Mortgage, which is geared toward low- to mid-income homebuyers and allows them to make down payments as low as 3%. Certain rules apply, however: Applicants must have a debt-to-income ratio of no more than 50% and their income must be equal to or less than 80% of the area’s median income.

    Freddie Mac Loan Guidelines And Key Programs

    Freddie Mac is not interested in buying every loanonly those loans that meet its criteria. In an effort to create up-front transparency and provide prudent risk management, Freddie long ago established a set of guidelines for the different types of loans it purchases from approved lenders. These guidelines are highly detailed and cover a range of loan products for conventional loans, first-time homebuyer loans, loans with low- to moderate-income requirements, refinances and more. All in all, Freddie Mac guidelines total more than 2,000 pages.

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    Housing Market Not Out Of The Woods’ Yet Economist Says

    The drop in mortgage rates may cause some confusion in a housing market that was getting used to inflation and climbing rates as the status quo, according to George Ratiu, a senior economist at Realtor.com.

    “The sharp volatility in mortgage rates is causing a large degree of uncertainty for buyers and sellers in the current market,” Ratiu said in a statement.

    Sellers have started to accept that home prices have to come down for buyers to be able to afford them. Realtor.com’s showed that 21% of listings had seen price cuts, Ratiu said.

    And buyers who are encouraged by last week’s rate drop may remain sidelined, hoping for rates to drop even lower, Ratiu said.

    “However, with inflation still north of 7% and the Fed committed to keep increasing the funds rate over the next few months, the mortgage market is not out of the woods,” Ratiu said. “We may still see rates rebound back above 7% before the end of the year.”

    If you think you’re ready to shop around for a mortgage loan, you can use the Credible marketplace to help you easily compare interest rates from multiple mortgage lenders and get prequalified in minutes.

    Have a finance-related question, but don’t know who to ask? Email The Credible Money Expert at and your question might be answered by Credible in our Money Expert column.

    What Role Did Fannie And Freddie Play In Inflating The Housing Bubble Of The Mid

    How Fannie and Freddie Prop Up America’s Favorite Mortgage | WSJ

    Contrary to conservative talking points, the answer is very little. During the bubble, loan originators backed by Wall Street capital began operating beyond the Fannie and Freddie system that had been working for decades by peddling large quantities of high-risk subprime mortgages with terms and features that drastically increased the chance of default. Many of those loans were predatory products such as hybrid adjustable-rate mortgages with balloon payments that required serial refinancing, or negative amortization, mortgages that increased the unpaid balance over time.

    Wall Street firms such as Lehman Brothers and Bear Stearns packaged these high-risk loans into securities, got the credit-rating agencies to bless them, and then passed them along to investors, who were often unaware or misinformed of the underlying risks. It was the poor performance of the loans in these private-label securitiesthose not owned or guaranteed by Fannie and Freddiethat led to the financial meltdown, according to the bipartisan Financial Crisis Inquiry Commission, among other independent researchers.

    These decisions eventually contributed to the companies massive losses, but all this happened far too late to be a primary cause of the housing crisis.

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