You may have heard of Fannie Mae & Freddie Mac but do you know who (or what) they are? More importantly, do you know what they have to do with your mortgage? Today’s blog is going to answer those questions. So if you’re curious, read on.
Meet Fannie Mae
Fannie Mae was born in 1938 during the great depression. Her real name is The Federal National Mortgage Association or FNMA but we commonly refer to as Fannie Mae. 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 publically 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?
As we stated above, they 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?
They 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 do 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 doesn’t affect you that much. But, 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 have an effect on the approval process and closing costs.
Feel free to get in touch with our Senior Residential Loan Officer, Melissa Flickenschild (NMLS# 524987) if you have further questions about this, or how Wallkill Valley Federal Savings & Loan can help your dreams of homeownership become a reality. Call 845-895-2051 and reach Melissa at extension 226. You can also email her at email@example.com. She would be happy to talk about our unique process, lower closing costs, and help you move one step closer toward home ownership.