Meet the experts Fannie Mae and Freddie Mac were created by Congress. They provide liquidity ready access to funds on reasonable terms to the thousands of banks, savings and loans, and mortgage companies that make loans to finance housing. Fannie Mae and Freddie Mac buy mortgages from lenders and either hold these mortgages in their portfolios or package the loans into mortgage-backed securities MBS that may be sold.
Lenders use the cash raised by selling mortgages to the Enterprises to engage in further lending. By packaging mortgages into MBS and guaranteeing the timely payment of principal and interest on the underlying mortgages, Fannie Mae and Freddie Mac attract to the secondary mortgage market investors who might not otherwise invest in mortgages, thereby expanding the pool of funds available for housing.
That makes the secondary mortgage market more liquid and helps lower the interest rates paid by homeowners and other mortgage borrowers. Fannie Mae and Freddie Mac also can help stabilize mortgage markets and protect housing during extraordinary periods when stress or turmoil in the broader financial system threaten the economy.
One way in particular that it helps both lenders and homeowners is by allowing banks to provide year mortgages. Without the financial backing of Freddie Mac, it would be too risky and expensive for banks to keep loans on their books for that long.
Freddie resells the mortgage-backed securities to investors on the secondary market. This allows more investors to profit from the real estate sector. Meanwhile, Freddie uses the proceeds to buy more bank mortgages. Marc Edelstein , a senior loan officer at Ross Mortgage Corporation in Detroit, told The Balance via email that Freddie Mac plays an important role in mortgage lending, and without the entity, lending would look very different.
So, Freddie Mac buys those loans, freeing up cash for lenders to provide mortgages to other qualified borrowers, Edelstein said.
Freddie guarantees that the investors will receive an agreed-upon monthly payment. So, how does this work? Each month, the bank receives your mortgage payment and forwards it to Freddie Mac, which then pays its investors. It doesn't sell all the mortgages it buys; some of them are kept as investments. It keeps mortgage interest rates low.
And when rates are low, it makes homeownership more affordable. By insuring mortgages, Freddie Mac gives lenders more confidence in approving loans. This makes homeownership possible for people who may not have gotten approved without this backing. In addition, the lenders expected the borrower to pay off the loan in 10 years or less, and there was usually a balloon payment at the end of the term. Federal involvement first with Fannie Mae in , and later with its brother organization, Freddie Mac in , helped to make loans more affordable for homeowners.
All of these actions help stimulate the housing market—which is good for individuals. A healthy housing market results in more residential construction, which leads to more jobs.
While not everyone works in the housing industry, those who do are likely to benefit when it is booming. In growing neighborhoods, there are more likely to be restaurants, big box stores, and other types of establishments.
It was not limited to just purchasing mortgages that had been issued or guaranteed by the feds. In fact, in , Freddie Mac issued the first conventional loan mortgage-backed security. In , Congress enacted the Financial Institutions Reform, Recovery, and Enforcement Act, and reorganized the corporate structure of Freddie Mac to be a for-profit corporation owned by private shareholders.
This letter is sent to you for informational purposes only. No action is required on your part and the sale does not affect any term, payment, or condition of your mortgage. Get the answers to the most frequently asked questions regarding this letter. PMI is an insurance policy that protects the lender if you are unable to pay your mortgage. Get the answers to the most frequently asked questions asked about PMI. If you're looking to buy a home, your first step is to call your lender to discuss the mortgage application process.
Learn more about finding and working with your lender. HARP, a federal program launched in , was designed to help homeowners who owe more on their mortgage than their home is worth take advantage of lower mortgage rates and other refinance benefits.
If you need help with your mortgage, there are many parties who can help you, including your lender, housing counselors, Freddie Mac Borrower Help Centers and others. Learn more about your options and ways to prepare for your discussion.
The process for buying a HomeSteps home and submitting an offer is similar to the process for buying just about any home listed on the market. The decision whether to rent or own your home depends on your personal circumstances and preferences.
However, Freddie Mac's Rent vs. Buy calculator can help you assess the different financial impacts of renting and owning, using your own financial information. Visit our Single-Family News Center to get current news on doing business with Freddie Mac, including originating and underwriting, selling and delivering, servicing, recent notices and more.
Please bookmark this page for future reference. When the borrower has been self-employed for less than two years, you must document the following:. You must document the payoff or pay down of the debts and the source of the funds used in the mortgage file.
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