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.
What Is A Mortgage Originator
A mortgage originator is the person, or organization, which takes you through the mortgage application process. In some cases, this is a mortgage broker, and in other cases, it is the lender themselves.
It works like this:
A potential borrower is looking for a mortgage. They, generally speaking, have two options.
The lender now owns the loan and can make money by:
Other lenders chose to make their profits through the servicing of mortgage loans. In this case, they are the mortgage servicer. There are many differences between the role of a mortgage originator and a mortgage servicer.
Fannie Mae And Freddie Mac Are Government Sponsored Enterprises
Fannie and Freddie are private corporations that were chartered by Congressâthe formal term for this kind of company is a Government Sponsored Enterprise . There are several other GSEs, like the Farm Credit System. While GSEs are publicly traded companies, they all serve a very public mission of supporting the nationâs financial system. Because of the large role they play in the economy and their governmental affiliation, some investors assume they are implicitly guaranteed by the federal government. This means they believe the government would bail out Fannie and Freddie if they couldnât pay back their debts.
Even though Freddie Mac and Fannie Mae are technically shareholder-owned, they have been under government conservatorship since the Great Recession. Many investors who hold stock in the two companies are eagerly waiting for them to emerge from government control so their stock can trade on public exchanges again.
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What Is Freddie Mac
Freddie Mac is the unofficial name of the Federal Home Loan Mortgage Corporation. It was established in 1970 under the Emergency Home Finance Act to expand the secondary mortgage market and reduce interest rate risk for banks. In 1989, it was reorganized and turned into a shareholder-owned company as part of the Financial Institutions Reform, Recovery, and Enforcement Act .
Freddie Mac’s charter is quite similar to Fannie Mae’s in that it expands the secondary market for mortgages and MBSs by buying loans made by banks, savings and loans, and other lending institutions. But unlike Fannie Mae, which buys mortgages from major retail and commercial banks, Freddie Mac buys its loans from smaller banks, such as thrift banks, that focus on providing banking services to communities.
Your Loan Payments Are Unchanged
Even though your mortgage was sold to Freddie Mac, there is no change to the way you make your mortgage payment.
You must continue to send your payments to the company listed on your mortgage statement.
The selling of your mortgage to Freddie Mac does not change the terms or conditions of your mortgage, and your payment obligations remain the same.
If you have questions about your mortgage or mortgage payment, contact your servicer, which is the company you make your mortgage payments to, using the contact information on your mortgage statement. Do not contact Freddie Mac.
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What To Expect If Your Loan Servicing Transfers
Finding out you have a new loan servicer after your mortgage has been sold is completely normal many lenders sell mortgages.
The transfer notice will provide the information you need to get ahold of your new servicer. From there, you may need to set up a new online account, direct deposit schedule and account profile on a new online servicing system. Be sure to act on this quickly so there are no delays that could cause your home loan payments to go through past the due date.
If there are delays that cause your mortgage payment to be missed, dont panic. Reach out to both providers to explain the issue. For instance, if you were notified on the 29th of a change in service and your next mortgage payment was already scheduled to go through on the 30th with the old provider, you might not be able to set up a new payment in just 24 hours.
Be sure to talk to your original lender to ensure your last payment went through and that you have clear expectations of when you should stop paying them. Then reach out to the new lender with this information, particularly if you missed a payment because you scheduled it with the old provider. If you accidentally make a payment to your old servicer within 60 days of the transfer of servicing, they arent legally allowed to consider it a late payment.
Communication is key during this process, so make sure youre covered and communicating with both providers.
List Of Banks That Dont Sell Their Mortgages
Are you worried about your mortgages being sold? Fortunately, there are banks that dont sell their mortgages, many of which are referred to as “portfolio lenders.
Many of them are small, community-oriented banks and credit unions, which are also more likely to offer lower rates, fewer fees, and better customer service. Some of them include:
- Rosedale Federal Savings & Loan Association. Rosedale Federal is a Maryland-based bank that prides itself on being a hometown lender. It doesnt sell its loans.
- Pentagon Federal Credit Union. The nation’s second-largest credit union, PenFed is known for its low rates and its practice of handling mortgages in-house.
- Member First Mortgage. Member First Mortgage is owned by 11 credit unions and handles its mortgages in-house instead of selling them to larger financial institutions.
The list of banks that dont sell their mortgages varies widely by geographic area. If you’re interested in working with a mortgage lender who won’t sell your mortgage to Fannie Mae, Freddie Mac, Carrington Mortgage Services, or another financial institution, check out the credit unions in your area.
They are more likely to service your mortgage in-house instead of selling it to another organization. Unlike banks, credit unions are non-profit organizations focused on providing better products and services to their members.
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Help Borrowers Resolve Problems
Servicers also have to respond to borrowers requests for information about their accounts, including inquiries about errors. If you find an error in your account, your servicer is required to look into it and either correct it or notify you that no error occurred.
Servicers also work with struggling borrowers to help them avoid foreclosure, and they initiate foreclosures when borrowers consistently cant keep up.
- If you fall behind on your mortgage payments, your servicer is required to contact you in writing by the 45th day of your delinquency and tell you what loss mitigation options are available. Loss mitigation options include loan modification and short sale.
- If your mortgage is more than 120 days delinquent, the servicer may be able to start the foreclosure process.
These rules have been significantly altered under the coronavirus pandemic for homeowners whose mortgages are owned by either Fannie Mae or Freddie Mac, the two big government-sponsored entities. The government placed a moratorium through the end of 2020 prohibiting foreclosures on these loans.
What Should I Do If My Bank Sold My Mortgage
First, don’t panic! As explained above, banks sell mortgages for reasons of their own, mostly because they want to make money or increase their available credit.
If your bank has sold your mortgage, it doesn’t bear any reflection on you, your creditworthiness, or your financial viability.
If your bank sells your mortgage, the good news is that things will likely remain the same for you, unless you want to refinance your mortgage . You can continue to pay off your mortgage, although you’ll now send payments to the institution your bank sold your mortgage to.
Your monthly payment amounts wont change, even if your new lender has different mortgage interest rates or fees. You’ll still be able to make the same monthly payments and pay the same interest rate you agreed upon when you signed your original mortgage agreement.
The only time you may need to take action would be if your former and new lenders neglected to update you about the change in a timely manner.
Within 30 days of the official change in ownership, your new lender must reach out to you to provide its contact information, and your former lender must send you a loan ownership transfer notice.
If either lender fails to alert you in a timely manner, causing you to make a late payment, you can take action. File complaints with your former or new lenders and get in touch with the Consumer Financial Protection Bureau to fill out a mortgage complaint form.
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How Do Fannie Mae And Freddie Mac Loans Work
When you’re shopping for a mortgage, you come across a lot of terminology that may be unfamiliar. Two terms you often encounter are Fannie Mae and Freddie Mac. But what are Fannie Mae and Freddie Mac, and what do they have to do with mortgage loans?
Fannie Mae and Freddie Mac sound like they might be the names of your favorite aunt and uncle, but they’re actually two major buyers and sellers of home mortgage loans. That means they buy loans from banks, bundle them together and then sell them to investors. The money banks gain from selling these loan sales enables them to lend more money to homebuyers.
Because Fannie Mae and Freddie Mac want to make sure the loans that they buy can be sold, these two federally backed companies set certain lending standards for borrowers. The loans that adhere to those standards are known as conforming loans. Follow along to find out more about how Fannie Mae and Freddie Mac loans work.
|Fannie Mae vs. Freddie Mac Loans|
|Fannie Mae Loans|
|Debt-to-income ratio up to 50%||Debt-to-income ratio up to 45%|
|Minimum credit score of 620||Minimum credit score of 620|
History Of Freddie Mac
In 1970, the federal government chartered the Federal Home Loan Mortgage Corporation — called FHLMC, which came to be known as “Freddie Mac” — to make it easier to create mortgages for homes. Freddie Mac is a “government-sponsored enterprise,” which is a hybrid between a government agency and a private company. Even though it’s not supposed to be funded by the taxpayers, an investment in debts that are guaranteed by Freddie Mac carries a government guarantee, just in case.
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When Will Shares Of Fannie Mae And Freddie Mac Trade Again
Today, shares of Fannie Mae and Freddie Mac are traded over the counter , meaning you canât buy them on a major stock exchange. The shares of FNMA and FMCC are both valued at less than $1 a share as of September 2021.
Investors who still hold the shares are anxious for the companies to leave conservatorship, which would let them trade on a stock exchange again and rise in value.
In 2014, FHFA published a strategic plan for releasing Fannie and Freddie from conservatorship. The plan has three big goals:
The idea is to create a system that keeps mortgages affordable and accessible, but without the implicit guarantee that contributed to the financial crisis of 2008.
The FHFA has developed a scorecard that is released each year to measure progress towards these goals. However, Congress must also decide that Fannie and Freddie can be moved out of conservatorship.
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.
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Review Homeowners Insurance Policy
Your loan servicer will likely notify your homeowners insurance carrier that your loan has transferred to new servicer. Make sure to review your next policy renewal notice to verify that the change has been made. If the policy hasnt been updated, contact your insurance company to ensure they update your loan servicing information.
What Role Did Fannie And Freddie Play In Inflating The Housing Bubble Of The Mid
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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Why Did Your Mortgage Lender Sell Your Loan
If youve ever taken out a mortgage, theres a good chance the lender who made the loan to you sold it to another bank or investor before you made your first payment. Theres also a good chance that if youve had your mortgage for a few years, it may have been sold at least one or two more times. Why all the paper shuffling? The answer is fairly straightforward.
Lenders typically sell loans for two reasons. The first is to free up capital that can be used to make loans to other borrowers. The other is to generate cash by selling the loan to another bank while retaining the right to service the loan. Cash is generated when the old lender charges the new lender a fee for collecting and disbursing the monthly payments. In the end, your loan could be owned by lender A while you make payments to lender B.
On a personal note, I once obtained a mortgage loan from one of the local community banks here in Las Cruces. I was informed at the closing that my loan had already been sold to what financial guru Clark Howard calls a multi mega-bank . In turn, the MMB sold the loan to the General National Mortgage Association . Until the mortgage was paid off, I continued to make my monthly payments to the MMB, who retained the servicing rights, even though Ginnie Mae is the owner of my loan.
See you at closing.
Gary Sandler is a full-time Realtor and president of Gary Sandler Inc., Realtors in Las Cruces. He loves to answer questions and can be reached at 642-2292 or .