How do Fannie Mae and Freddie Mac affect your mortgage?

We have all heard of Fannie Mae and Freddy Mac. But who or what are they really? How do they impact your mortgage decisions?

Fannie May and Freddy Mac are nicknames for Federal National Mortgage Association (FNMA) and Federal Home Loan Mortgage Corporation ( FHLMC), corporations that operate in the secondary mortgage market. You will probably never come in contact with these two organizations since they deal exclusively with lenders, such as your own friendly lender. That’s how they impact you.

First a little background on these two organizations.

From Fannie Mae’s website:

"Fannie Mae is a government-sponsored enterprise (GSE) chartered by Congress with a mission to provide liquidity, stability and affordability to the U.S. housing and mortgage markets."

(NOTE: A GSE is a shareholder-owned company created by Congress to serve a public purpose.)

"Fannie Mae operates in the U.S. secondary mortgage market. Rather than making home loans directly to consumers, we work with mortgage bankers, brokers and other primary mortgage market partners to help ensure they have funds to lend to home buyers at affordable rates. We fund our mortgage investments primarily by issuing debt securities in the domestic and international capital markets."

"Fannie Mae was established as a federal agency in 1938 [during the Great Depression], and was chartered by Congress in 1968 as a private shareholder-owned company."

From the Freddie Mac website:

"Freddie Mac is a government-sponsored enterprise (GSE) chartered by Congress to stabilize the nation’s residential mortgage markets and expand opportunities for homeownership and affordable rental housing. Our statutory mission is to provide liquidity, stability and affordability to the U.S. housing market."

"Freddie Mac does essentially the same thing as Fannie May. It was created in order to prevent Fannie Mae from monopolizing the market."

Interestingly, "Fannie Mae and Freddie Mac are the only two Fortune 500 companies that are not required to inform the public about any financial difficulties that they may be having." Freddy Mac is located in McLean, VA. and Fannie Mae in Washington DC.

From various sites:

"While Fannie Mae was a federal program created in 1938 as part of the New Deal, Freddie Mac was chartered by Congress as a private corporation in 1970."

"They both have the exact same business model and they do the exact same thing; they buy mortgages on the secondary market, pool them, and then sell them as mortgage-backed securities to investors on the open market. Everything else regarding government guarantees, explicit guarantees, implicit guarantees, subsidies and direct government funding is exactly the same for Freddie Mac as it is for Fannie Mae."

"The difference between Freddie Mac and Fannie Mae is that Fannie Mae primarily buys mortgages issued by banks and Freddie Mac primarily buys mortgages issued by thrifts."

So how do they impact your mortgage decision?

When you obtain a mortgage from your friendly neighborhood bank (or any lender) the bank has the option to sell the mortgage note you signed to another company. In return they get new funds that they can lend out again. Fannie Mae and Fanny Mac are two organizations that can purchase these notes. They are large and most banks go to them to sell their notes. But, Fannie Mae and Freddy Mac have rules. If your lender intends to sell your note to either Fannie Mae or Freddy Mac it must abide by those rules.

One of the rules is that they limit the size of the mortgages that they will purchase. For Garrett County, for both Fannie and Freddy, for loans originating in 2010, the limits are a function of the number of housing units, and are:

One Unit     $437,500

Two Units   $560,050

Three Units $677,000

Four Units   $841,350

Author: Pete Versteegen - Ridgeview Valley, LLC

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Additional materials to read:

A good explanation of the history of Freddie, Fannie, and Ginnie:

http://en.wikipedia.org/wiki/Federal_National_Mortgage_Association http://www.bluecollardollar.com/macmae.html and http://hnn.us/articles/1849.html

Freddie Mac’s website: http://www.freddiemac.com/corporate/about_freddie.html

Fannie Mae’s website: http://www.fanniemae.com/kb/index?page=home

The difference between the two organizations: http://www.diffen.com/difference/Fannie_Mae_vs_Freddie_Mac