You’ve heard of Fannie Mae and Freddie Mac, but who or what are they? More importantly, why are they so important in the nation’s housing finance system? In today’s blog, we will be answering these questions!
Meet Fannie Mae
In 1938, during The Great Depression, The Federal National Mortgage Association (FNMA) was created. As part of The New Deal, Fannie Mae was created by Congress as a private corporation with the purpose of expanding the secondary mortgage market (more on what that means in the next section…). Fannie Mae is a Government-Sponsored Enterprise (GSE) and has been a publicly traded company since 1968.
Meet Freddie Mac
Fannie Mae’s brother, Freddie Mac was chartered in 1970. The Federal Home Loan Mortgage Corporation or FHLMC is his formal name. Another GSE, today’s Freddie Mac is a shareholder owned company under a congressional charter.
Why were they formed?
Fannie Mae and Freddie Mac were formed to help expand the mortgage market into the secondary market by providing liquidity, stability and affordability. They were created to provide ready access to funds with reasonable terms to home buyers and to release the burden of lending money for mortgages from the locally based savings and loan associations.
What do they do?
Fannie Mae and Freddie Mac buy mortgages from lenders to either hold in their portfolio or to package into Mortgage-Backed Securities (MBS) to be sold to the secondary market. This creates liquidity and allows lenders to reinvest their assets. The way that the MBSs are packaged and the fact that they guarantee timely payment make them attractive to investors in the secondary market.
How is the government involved?
Although they were chartered by the government, Fannie Mae and Freddie Mac are indeed privately owned. The government connection means that they receive some government support in the form of credit lines. This allows them to guarantee timely payment to their investors, thus making the MBS more attractive.
How does this affect me?
If you are already in your home, whether your loan is Fannie Mae or Freddie Mac, this doesn’t affect you that much. However, if you are in the market for a home it could have an effect on your closing. Lending institutions that do not sell their loans to Fannie Mae or Freddie Mac, like Wallkill Valley Federal Savings & Loan, do not have to adhere to some of the strict criteria for approval and loan level pricing. That can influence the approval process and closing costs.
If you have any further questions about this or how Wallkill Valley Federal Savings & Loan can help make your homeownership dreams a reality, feel free to contact our Senior Residential Loan Officers Cyndi O’Brien and Rick Farrow! They would love to discuss all we have to offer to move you even closer toward owning your dream home! You can find their contact information listed below. We look forward to hearing from you!
Phone: (845)895-2051 ext. 431
Phone: (845)895-2051 ext. 426