mortgage market Archives - Page 9 of 87

Apache is functioning normally

February 4, 2024 by Brett Tams

If you’re having a tough time getting home loan financing using a mortgage broker or a local mortgage lender, consider contacting a portfolio lender directly to close your mortgage.

They can offer solutions that others cannot, and may have just what you’re looking for. For example, a portfolio lender may be willing to offer you a no-down payment mortgage while others are only able to give you a loan up to 97% loan-to-value (LTV).

The same might be true if you have bad credit, a high DTI ratio, or any other number of issues that could block you from obtaining traditional mortgage financing.

What Is a Portfolio Loan?

A home loan unique to the lender offering it
That comes with special terms or features
Other mortgage lenders do not offer
It is kept on the bank’s books as opposed to being sold to investors

In short, a “portfolio loan” is one that is kept in the bank or mortgage lender’s loan portfolio, meaning it isn’t sold off on the secondary market.

By servicing the loans themselves and keeping them in portfolio, these lenders are able to take on greater amounts of risk, or finance loans that are outside the credit box because they don’t need to be resold to investors with specific underwriting guidelines.

These companies have the ability to bend the rules when they see a deal worth doing, whereas mortgage lenders that must adhere to Fannie Mae, Freddie Mac, and the FHA have very little wiggle room.

You see, most loans that are sold off are backed by Fannie and Freddie, or the FHA in the case of FHA loans, so very rigid underwriting standards must be met without exception.

Portfolio lenders, on the other hand, can create their own underwriting guidelines because they aren’t at the mercy of an outside agency if they’re actually willing (and able) to keep the loans they make.

A lot of small and mid-size lenders don’t have the same authority because they must sell their loans off on the secondary mortgage market due to liquidity constraints. And investors are becoming increasingly selective as to which loans are actually purchased.

Who Owns My Home Loan?

Most home loans are sold shortly after origination
So the bank that funded your loan likely won’t service it
Look out for paperwork from a new loan servicer after your loan funds
Unless it’s a portfolio loan

Many mortgages today are originated by one entity, such as a mortgage broker or mortgage lender, and then quickly resold to investors who earn money from the repayment of the loan over time.

Gone are the days of the neighborhood bank offering you a mortgage and expecting you to repay it over 30 years, culminating in you walking down to the branch with your final payment in hand. Well, there might be some, but it’s now the exception rather than the rule.

In fact, this is part of the reason why the mortgage crisis took place in the early 2000s. Because originators no longer kept the home loans they made, they were happy to take on more risk.

After all, if they weren’t the ones holding the loans, it didn’t matter how they performed, so long as they were underwritten based on acceptable standards. They received their commission for closing the loan, not based on loan performance.

Today, you’d be lucky to have your originating bank hold your mortgage for more than a month. And this can be frustrating, especially when determining where to send your first mortgage payment. Or when attempting to do your taxes and receiving multiple form 1098s.

This is why you have to be especially careful when you purchase a home with a mortgage or refinance your existing mortgage. The last thing you’ll want to do is miss a monthly payment right off the bat.

So keep an eye out for a loan ownership change form in the mail shortly after your mortgage closes. If your loan is sold, it will spell out the new loan servicer’s contact information, as well as when your first payment to them is due.

Portfolio Loans May Solve Your Financing Problem

Large loan amount?
High DTI
Low credit score
Recent credit event such as short sale or foreclosure
Late mortgage payment
Own multiple investment properties
Need an asset-based income loan

Now back to portfolio loans. If you’re having a tough time getting approved for a mortgage, or finding a particular type of loan, consider a portfolio lender.

As noted, these types of mortgage lenders can offer things the competition can’t because they’re willing to keep the loans on their books, instead of relying on an investor to buy the loans shortly after origination.

They also offer mortgages that fall outside the guidelines of Fannie Mae, Freddie Mac, the FHA, the VA, and the USDA.

That’s why you might hear that a friend or family member was able to get their mortgage refinanced with U.S. Bank or a similar portfolio lender despite having a low credit score or a high LTV.

So if you’re in need of a $5 million jumbo loan, or an interest-only mortgage, or something else that might be considered unique, look to portfolio lending to solve your financing woes.

They may also be able to work with you if you’ve experienced a recent credit event, such as a late mortgage payment, a short sale, or a foreclosure. Really, anything that falls outside the box might be considered by one of these lenders.

Some of the largest portfolio lenders include Chase, U.S. Bank, and Wells Fargo, but there are many smaller players like Bank of Internet, BancorpSouth, Caliber Home Loans, and Wintrust Mortgage.

Portfolio Loan Rates

Portfolio mortgage rates may be higher
Than typical home loan rates
Because the loan programs aren’t necessarily available everywhere
Meaning you may pay for the added flexibility

Now let’s talk about portfolio loan mortgage rates, which as you might suspect, may not be as low as the competition.

Ultimately, many mortgages originated today are commodities because they tend to fit the same underwriting guidelines of an outside agency like Fannie, Freddie, and the FHA.

As such, the differentiating factor is often rate and closing costs, since they’re all basically selling the same thing. You may also see customer service, or in the case of Rocket Mortgage by Quicken Loans, a quirky ad campaign and some unique technology.

For portfolio lenders who offer a truly unique product, loan pricing could be entirely up to them, within what is reasonable. If the loan program is really special, and only offered by them, expect rates significantly higher than what a typical market rate might be.

If their portfolio home loan program is just slightly more flexible than what the agencies mentioned above allow, mortgage rates may be comparable or just a bit higher.

It really depends on your particular loan scenario, how risky it is, if others lenders offer similar financing, and so on.

At the end of the day, a portfolio loan is a solution that isn’t offered by every bank, so you should go into it expecting a higher rate. But if you can get the deal done, it might be a win regardless.

Source: thetruthaboutmortgage.com

Apache is functioning normally

February 3, 2024 by Brett Tams

“Long-term” is a subjective measurement, but in this case, it refers to the the past 7 or 8 months. Today’s mortgage rates dropped to levels that–until 2 other recent days in late December–haven’t been seen since May, 2023. In other words, we’re effectively at 8 month lows today, even if those lows aren’t very different from the lows in late December.

This week’s precipitous drop came courtesy of factors other than the slate of economic data. That’s interesting because we’d been eagerly anticipating this week’s econ data as a potential source of volatility. Instead, it was a friendly update from the U.S. Treasury on its borrowing plans (something that can have a big, indirect impact on mortgage rates by altering the supply/demand equation in the Treasury market which then spills over into the mortgage market).

All of the above means that Friday morning’s jobs report is our first significant opportunity to see a big move in rates that’s driven by economic data. As is always the case ahead of this report, the reaction could easily take rates quite a bit higher or lower. It can also thread the needle and keep things fairly flat.

The market is expecting the job count to drop to 180k from last month’s 216k. A lower number would likely keep low rates intact, and a much lower number would allow for new longer-term lows. Conversely, a number over 200k would be more likely to put upward pressure on rates. It’s not uncommon for the actual number to come in roughly 100k away from the forecast level. The farther from forecast, the likely we are to see the big reaction.

Source: mortgagenewsdaily.com

Apache is functioning normally

February 2, 2024 by Brett Tams

Home Equity Appraisal, Market Research Tools; Planet Home Stats; Agency Changes

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Home Equity Appraisal, Market Research Tools; Planet Home Stats; Agency Changes

By:
Rob Chrisman

Wed, Jan 31 2024, 10:56 AM

I could tell that my cat Myrtle was miffed. Not only had the work on her “2024 Vision Board Statement” languished, but either there was no line-caught halibut in her bowl, or the laser pointer’s battery was dead. It turned out that it was neither. Instead, it was news that the CFPB was not meeting its goals. the Office of Inspector General of the Federal Reserve Board released a report assessing the CFPB’s process for conducting enforcement investigations and making two recommendations. First, noting that the CFPB has not met its stated goal to file or settle 65 percent of its enforcement actions within two years, the OIG recommended that the CFPB Office of Enforcement incorporates the timing expectations for key steps in the enforcement process into the tracking and monitoring of matters. The OIG also recommended improvements to enforcement staff training on document maintenance and retention requirements for the CFPB’s matter management system. The report states that the recommendations were accepted by the CFPB, with a follow-up to ensure full implementation. Today’s Commentary podcast can be found here and this week’s is sponsored by Calque. With The Trade-In Mortgage powered by Calque, lenders help their clients negotiate a lower purchase price, reduce their interest payments, and eliminate PMI. Hear an interview with Broker Action Coalition’s Katie Sweeney on her transition from leading the Association of Independent Mortgage Experts (AIME) to leading the Broker Action Coalition and the Political Action Committee that she started with AIME.

Lender and Broker Software, Products, and Services

Are you looking to source new third-party originators (TPOs) for your wholesale and/or correspondent channels in 2024? If so, be sure to start by considering important factors such as production volume, branch total, number of loan officers, and product types. While it can be overwhelming to manage all these factors, Optimal Blue’s Comergence Prospect Marketing solution makes it easy. As the most comprehensive prospect marketing and data analysis tool in the industry, Comergence simplifies how you research the marketplace, understand client volume and trends, identify and develop new business opportunities, and empower your field sales staff. Plus, production numbers are updated every week. Contact Optimal Blue to take the first step toward more effective TPO sourcing with Comergence Prospect Marketing.

Make your general ledger profitable and run your business more efficiently with Loan Vision and LV-PAM. Instead of “staying alive until ‘25”, with Loan Vision, a software built BY the mortgage industry FOR the mortgage industry, you can “produce more in 24!” Customers on Loan Vision see improvements of 30 precent+ decrease in days to close the books, 20 percent+ reduction in accounting headcount, complete LOS to G/L automation, and improved reporting and visibility. Interested in learning how Loan Vision can help you run a more efficient and profitable company? Contact Carl Wooloff to schedule a call today.

HELOCs, AVMs, PCRs… when it comes to home equity lending and its corresponding appraisal solutions, it can start to look like alphabet soup. Thankfully, Class Valuation put together your one-stop shop for all home equity appraisal solutions, specifically for brokers. The Home Equity Playbook by Class Valuation is a must-have guide for navigating the intricacies of home equity valuations. It provides essential insights and detailed explanations, ensuring you’re equipped with the knowledge necessary for accurate and efficient appraisals. This guide is more than just a resource; it’s a roadmap to understanding various appraisal methodologies and their use cases in HELOC lending. When you download the playbook, you’ll find everything you need to know about AVMs, evals and more, including what they are, what they’re used for, and how Class’ solutions may differ from others. You’ll find that navigating home equity appraisal solutions is no longer a daunting task, but a streamlined, manageable process. Download it here.

Want to make it easy for your borrowers to opt out of pre-screened credit offers to keep them from being bombarded by your competition when their credit is pulled? Your POS can do that. Well, maybe not yours, but LiteSpeed by LenderLogix can!

You need more than just a license to make money as a Loan Officer, but you probably already knew that. For starters, you’ll need to know three things to be successful: how to talk to your clients, how to process a loan application and how to seal the deal. At Madison Chase Academy we teach Loan Officers how to become successful in a short period of time. There are so many mistakes to avoid and I’m here to teach you how to do things the right way… the first time! 6 Months to 6 Figures. I will walk you through exactly what is necessary for you to build a profitable Loan Officer business. For more information contact Tanya Blanchard (770-851-9334).

Fannie and Freddie Updates

When a lender originates a conventional loan, the usual next step is to sell it to Freddie Mac or Fannie Mae, and retain the servicing, sell it to them and sell the servicing, or sell the loan servicing released. Or the servicing can be sold in bulk transactions later. Who’s buying the servicing that many lenders are selling to stay afloat? Well, among others, AmeriHome, Pennymac, Carrington, Newrez, and… Planet Home. During 2023, Planet Financial Group, LLC, parent of national mortgage lender and servicer Planet Home Lending, LLC and Planet Management Group, LLC, Owned Mortgage Servicing Rights (OMSR) portfolio rose to $92.48 billion at yearend 2023, up 47 percent from yearend 2022. 2023 origination volume hit $25 billion, down only 5 percent versus 2022. The company reached and estimated #2 government correspondent lender and the #3 correspondent lender overall, and acquired $14 billion of MSR’s through bulk and Co-Issue channels.

Planet’s servicing portfolio ended 2023 at $104.69 billion, up 42 percent from $73.64 billion in December 2022. At yearend, Planet was the 9th largest Ginnie Mae servicer, according to Inside Mortgage Finance data. Sub-servicing volume ended the year at $10.95 billion overall, up 68 percent from $6.5 billion at yearend 2022. Planet’s residential origination volume ended at $25 billion, down just 5 percent from 2022. Correspondent volume held steady in 2023, ending at $23.78 billion, off 1 percent from 2022 volume. Planet’s correspondent market share rose from 4.2 percent at yearend 2022 to 6.4 percent at Q3 2023, according to the latest data available from Inside Mortgage Finance. At yearend 2023, Planet was the #3 correspondent lender, up from #5 at yearend 2022 and the #2 government correspondent lender, up from #3, according to data from Refinitiv.

On January 23, Freddie Mac and Fannie Mae (the “Enterprises”) announced an updated Single-Family Social MBS and Corporate Debt Bonds Framework, and updates to mortgage-backed securities (“MBS”) disclosures. As part of the framework updates, the Enterprises will rename the Social Index to the “Mission Index” in February. Additionally, Fannie Mae will update the formulation of the index in February, and Freddie Mac will update the formulation of the index in May. The Mission Index offers MBS investors insights into the Enterprises’ mission-oriented lending initiatives, enabling investors to allocate capital towards those activities. The revised Mission Index will apply to pools issued by Fannie Mae starting in March and for Freddie Mac starting in June.

The updated frameworks define criteria beginning in June for the Enterprises’ mortgage collateral that may be pooled, issued, and labeled “Social MBS.” That label is applied when the Mission Index score of the underlying pool exceeds a specified threshold. The Enterprises also announced they plan to provide impact reporting annually beginning in 2025, “which will help the market understand the associated impact of the loans underlying their investments.”

Fannie Mae is implementing two enhancements for the HomeReady® mortgage product. For creditworthy very low-income purchase (VLIP) borrowers, Fannie’s Mae is offering a new temporary $2,500 credit for use towards down payment and closing costs. Along with this enhancement for borrowers, lenders who take HomeReady product commitments in Pricing & Execution-Whole Loan® (PE-Whole Loan®) can now reduce hedging costs and lock in margins with an enhanced best-efforts commitment. Fannie Mae Lender Letter (LL-2024-01).

Fannie Mae’s Press Release announced Single-Family Social Bond Framework. The updated Social Bond Framework describes the Fannie Mae mortgage collateral eligible to be pooled, issued, and labeled as Single-Family “Social MBS.”

Fannie Mae posted the January Appraiser Quality Monitoring (AQM) list.

Leverage key learnings and observations from calibrations to enhance your quality control (QC) program. This Fannie Mae Quality Insider features opportunities and tips aggregated from QC calibration exercises across a larger segment of lenders.

Freddie Mac published Guide Bulletin 2023-24 announced several changes, including updates to 10-day PCV types and occupancy requirements for a cash-out refinance to require all borrowers to occupy the mortgaged premises if occupied as a primary residence. See AmeriHome Mortgage Announcement Number 20240109-CL for more information.

Capital Markets

Credit conditions loosened as Treasury yields and mortgage rates decreased, so businesses and individuals are taking advantage of the borrowing opportunity. The Wall Street Journal has examined eight charts that detail the state of credit, from an increase in corporate bond issuance and consumer borrowing to a decrease in secured bond issuance. Despite long-standing concerns about a recession, some indicators suggest the economy and credit markets are at the beginning of a cycle of growth! Of course, with too much growth comes higher rates.

In supply and demand news, the Treasury Department has pared its borrowing estimate for the first quarter to $760 billion from the $816 billion projected in October. “Experts” had predicted the opposite, but Treasury officials say less borrowing is needed because of improving fiscal flows and higher-than-expected cash on hand.

Speaking of predictions that did not come to fruition, the U.S. economy is healthier than what economists expected a year ago. But some Federal Reserve officials emphasize a need for caution as they determine how to proceed with monetary policy. Per Fed Governor Waller, “Inflation of 2 percent is our goal. But that goal cannot be achieved for just a moment in time. It must be sustained.”

With the items above as a backdrop, in news of interest to the mortgage market, the latest home price data from S&P/Case-Shiller for November was another reminder that affordability remains challenging for home buyers. Despite the U.S. National and 20-City Composite Indexes recording their first month-over-month declines since January 2023, November’s year-over-year gain saw the largest growth in U.S. home prices in 2023, with the National Composite rising 5.1 percent and the 10-city index rising 6.2 percent. Rates falling around 100 basis points since October could support further annual gains in home prices.

Today’s highlight is the FOMC statement followed by the post-meeting press conference with Chair Powell, but the economic calendar kicked off with mortgage applications decreasing 7.2 percent from one week earlier, according to data from the Mortgage Bankers Association’s Weekly Mortgage Applications Survey for the week ending January 26. Last week’s results included an adjustment to account for the MLK holiday. Prior to the Fed, we’ve also received ADP employment for January (107k, much lower than expected), and the Q4 employment cost index. Later today brings the Quarterly Refunding announcement, then January Chicago PMI. No change in the fed funds target rate range is expected with the release of the latest FOMC policy statement, but the market will be eager to hear if there is any softening in the hawkish rhetoric. We begin the day with Agency MBS prices better by .125-.250, the 10-year yielding 4.01 after closing yesterday at 4.06 percent, and the 2-year at 4.30.

Employment, and Transitions

Stronghill Capital, LLC, an Austin, TX-based Wholesale and Correspondent lender, is hiring across the country! If you’re a relationship-focused Account Executive with experience in Non-QM and Investor Financing, including multi-family and mixed-use properties, we’d love to speak with you! Stronghill’s Account Executives enjoy open territories, multi-channel opportunities to work with clients as correspondents or brokers, and consistent communication and collaboration with the Executive Leadership team. Stronghill Capital is a non-bank, balance-sheet lender specializing in commercial and investment property loans. We can help your clients meet their needs. If you’re looking to join a rapidly-growing, dynamic organization with a focused commitment to growth and expansion in Non-QM, reach out to our SVP of Sales, Matt Brammer, or 440.382.3183 to learn more.

Cenlar FSB announced the promotion of several senior leaders and the appointment of one Vice President: Owen Amster, to Vice President and Controller, Nick Brett, to Senior Vice President of Client Management, Mike Day, to Vice President of Executive Client Management, Trevor Friel, to Vice President of Workforce Management, and Rena Madia, to Vice President of Customer Interaction. Heidi Carter is now the Vice President, Business Information Officer, serving as the dedicated Business Information Officer (BIO) lead for our corporate functions across the enterprise.

Dark Matter Technologies announced that Tony Fox as its chief of client engagement responsible for directing the company’s account management and client success teams and will report to Sean Dugan, chief revenue officer at Dark Matter.

Download our mobile app to get alerts for Rob Chrisman’s Commentary.

Source: mortgagenewsdaily.com

Apache is functioning normally

February 2, 2024 by Brett Tams

The report on the Home Equity Conversion Mortgage (HECM) book of business inside the Mutual Mortgage Insurance (MMI) Fund was another positive overall development for the program, with the estimated economic net worth of the HECM MMI at $15.368 billion, according to the Federal Housing Administration (FHA) Annual Report to Congress released in November.

The cash-flow net present value (NPV) of the HECM book also increased year over year, from $3.646 billion in 2022 to $6.742 billion in 2023. Details of the actuarial review of the HECM book of business, independently conducted by IT Data Consulting LLC, goes into deeper detail about what drove the added economic value to the HECM book of business.

Change in cash flow

While there was no single factor that led the HECM book’s value to a higher level last year, the reviewers pointed instead to multiple elements that dictated the results.

“The change was driven by many factors, such as differences in the actual performance of the economy versus what was projected and differences in the actual composition of the portfolio versus what was projected,” the report stated.

One impact was tied to the pandemic, the report explained.

“Higher death termination caused by the COVID-19 pandemic was in the data and led to different age composition of the active loan,” the report read. “We leave this to future research to identify the impact of the COVID-19 pandemic on the composition of surviving loans. Excluding the impact of COVID-19 pandemic on termination rates, the forecasted NPV is $6.667 billion, which reduces the actuarial central estimate of $6.742 billion with COVID impact by $0.074 billion.”

Once more, the reviewers point out that FHA endorsed 32,932 HECM loans in fiscal year 2023, with a total maximum claim amount (MCA) of $15.892 billion. Total endorsements between fiscal years 2009 and 2023 were 863,102, a rough estimate of the total number of customers served by the HECM program since the early aftermath of the Great Recession.

Despite a wide variety of disbursement options, the reviewers concluded that the line of credit option on a HECM loan is by far the most popular among borrowers, with 87% of HECM customers choosing the line of credit over other options like a lump-sum or term payment.

The review also reinforced existing product trends, including the relative inactivity of the HECM for Purchase (H4P) product relative to the traditional HECM, as well as the sharp drop-off in HECM-to-HECM refinances that occurred last year following a historic rise in interest rates.

In fact, the reviewers see so few H4P loans that they don’t see a need to distinguish them from traditional HECMs.

“In our analysis, the traditional and for-purchase HECMs are treated the same, as the volume of for-purchase HECMs is small,” the report explained.

Loan amounts and HECM limits

The actuarial report also detailed loan amount information and how these have changed since fiscal year 2009.

“Approximately 65% of loans endorsed in Fiscal Year 2009 had an MCA of less than or equal to $300,000, and this percentage increased to approximately 72% by Fiscal Year 2012,” the report stated. “Since then, the percentage of endorsements less than $300,000 has decreased steadily to approximately 23% for Fiscal Year 2023.”

With higher limits, the loan amounts have been steadily increasing in tandem, the report suggests.

“The percentage of endorsements with an MCA between $300,000 and $417,000 decreased from 17.6% in 2009 to about 12-14% during Fiscal Years 2010 through 2014. In 2023, it has increased to 23.6%. As the principal limit has been increasing, the percentage of endorsements with an MCA over $417,000 has increased steadily since 2012.”

In 2009, the U.S. Department of Housing and Urban Development (HUD) set the HECM limit at $625,500, an increase from $417,000. HUD extended that HECM limit through 2017, at which point it was modestly increased to $636,150.

Since then, increases in the HECM limit have closely tracked those of conforming loan limits, which ultimately led to the limit surpassing $1 million for the first time in 2023. In 2024, the HECM limit stands at $1,149,825, an increase of more than $60,000 compared to the prior year.

The evolving landscape

The overall landscape of the reverse mortgage market is subject to change despite the reviewers’ attention to detail and sound predictions, the report said.

“Regulatory updates, evolving demographics, economic conditions, and consumer preferences, unclear interest rate and house market will contribute to the changing landscape of the HECM market,” the report stated. “Changes in financial markets, retirement needs, and long-term care needs will affect borrowers’ participation in the HECM program, how they use HECM loans, and the innovation in product design. This will affect the loan termination and performance of current loans.”

The addition of nonborrowing spouses younger than 62 in 2014 is one such change that could alter the course of the program. Other examples include the introduction in 2015 of the life-expectancy set aside (LESA) account and the 2017 principal limit factor changes.

Different limits in the future could also change the trajectory of the HECM program and, by extension, the book of business inside the MMI Fund.

“Congress has constantly increased the loan limit every year since 2018,” the report explained. “The continuation of the higher loan limit might attract current borrowers to refinance their current HECM to get access to home equity.”

Apache is functioning normally

February 1, 2024 by Brett Tams

Portions of this article were drafted using an in-house natural language generation platform. The article was reviewed, fact-checked and edited by our editorial staff.

Key takeaways

Fannie Mae and Freddie Mac are government-sponsored enterprises that aim to provide the mortgage market with stability and affordability.
They are major players in the secondary mortgage market, buying loans from lenders and either keeping them or repackaging them as mortgage-backed securities.
Fannie Mae and Freddie Mac were both created by Congress but have different intended purposes and loan-sourcing methods.

As you explore your mortgage options, you’re likely to come across two names: Fannie Mae and Freddie Mac. Although you won’t directly get a home loan through these government-sponsored enterprises (GSEs) — private entities operating under a Congressional charter — they nonetheless have an impact on your getting a mortgage and its terms. Let’s take a closer look at these key players in the mortgage industry, and what distinguishes them.

What are Fannie Mae and Freddie Mac?

Fannie Mae and Freddie Mac are government-sponsored enterprises. Congress created both with the goal of adding stability and affordability to the country’s mortgage market. They also provide banks and mortgage companies with ready access to funds on reasonable terms, adding liquidity to the mortgage market.

Both agencies are major players in the secondary mortgage market. That is, their focus is buying loans from mortgage lenders, giving those institutions more capital to continue offering financing to other borrowers. Fannie Mae and Freddie Mac then either keep them or, more often, repackage them as mortgage-backed securities that can be sold to investors.

By acting as a market-maker — that is, constant buyer — they ensure liquidity in the lending world. As of 2023, Fannie Mae and Freddie Mac support around 70 percent of the mortgage market, according to the National Association of Realtors. That means the majority of conventional loans, those offered by private lenders, end up being backed or purchased by one of the two entities.

Though they set criteria for loans, neither Fannie Mae nor Freddie Mac originate or directly provide mortgages to homebuyers. Instead, you’ll get your loan from a mortgage lender, such as a bank, credit union or online lender, which can then choose to sell the loan to one of these GSEs, assuming the loan’s eligible.

Differences between Fannie Mae and Freddie Mac

While they may seem incredibly similar, Fannie Mae and Freddie Mac have some key differences. Here’s a closer look at what differentiates Freddie Mac from Fannie Mae.

Intended purpose

Fannie Mae was established with the intended purpose of creating a more reliable source of accessible funding for banks and mortgage companies. This, in turn, opened the door to more widely accessible and affordable mortgages for Americans seeking to become homeowners. Congress created Freddie Mac, on the other hand, with the goal of expanding the secondary mortgage market, buying loans that meet its standards from lenders. This function allows lenders to make more loans available to prospective buyers.

Loan sourcing

Although both do buy mortgages, each GSE purchases loans from different sources. In general, Fannie Mae tends to buy loans from larger commercial banks and mortgage lenders, whereas Freddie Mac often buys loans from smaller banks.

Lending requirements

Fannie Mae and Freddie Mac also have slightly different requirements for the mortgages they purchase. In both cases, Fannie and Freddie loans must be conforming loans, or adhere to these standards, for them to be eligible for purchase. The requirements cover the amount of the home purchase price that can be financed, the borrower’s credit score and debt-to-income (DTI) ratio, loan-to-value (LTV) ratio and other factors.

Loan programs

Fannie and Freddie each sponsor different loan programs — mortgage products that expand homeownership opportunities to buyers who may not be able to afford a conventional down payment. These include HFA loans offered through state housing finance agencies, as well as the HomeReady and HomePossible mortgage programs, offered through approved private lenders. Both empower buyers by requiring only a 3 percent down payment.

Similarities between Fannie Mae and Freddie Mac

Now that we’ve covered their differences, let’s touch on how Fannie Mae and Freddie Mac are similar.

Their creation and structure

Both Fannie Mae and Freddie Mac were created by Congress to address issues in the housing market. They exist as publicly-traded corporations that are under the conservatorship of the government.

Buy and sell mortgages

Fannie Mae and Freddie Mac buy loans from lenders and repackage them into mortgage-backed securities. This benefits the mortgage market in a couple of ways. First, it lowers the risk of default for lenders since they don’t have to keep these loans on their books. Plus, selling mortgage-backed securities to investors creates stability in the secondary mortgage market, further lowering risk and leading to lower interest for borrowers.

Increase loan availability

Because Fannie and Freddie buy loans from lenders, this increases the amount of money lenders can loan out. Once they close a loan and sell it to Fannie or Freddie, lenders can re-lend that cash.

Standardize loans

Fannie Mae and Freddie Mac only buy loans that conform to the FHFA’s standards. That means they must be under a certain loan limit and borrowers must meet specific financial requirements. Lenders have adopted these standards for most conventional conforming loans so they can sell their mortgages to Fannie and Freddie.

Fannie Mae and Freddie Mac history

In 1938, the government created Fannie Mae, or the Federal National Mortgage Association, amid the struggles of the Great Depression. The goal of Fannie Mae was to create a more reliable source of funding for banks, opening doors for more Americans to become homeowners, figuratively and literally.

Freddie Mac, short for the Federal Home Loan Mortgage Corporation, came on the scene through an act of Congress in 1970, with a similar purpose of ensuring that there are reliable, affordable mortgage funds available nationwide.

Since 2008, both Fannie Mae and Freddie Mac have operated under the conservatorship of the Federal Housing Finance Agency (FHFA). Though both are currently under a conservatorship of the same agency, the two entities are separate from one another, each with its own shareholders and leadership.

Fannie and Freddie in the 21st century

Both Fannie and Freddie played a role in the Great Recession. In the years leading up to the housing market collapse, they backed or owned numerous subprime mortgages. When the housing bubble burst, economic pressures and large losses led to the need for the government to step in and help them with bailouts. The two agencies took on more debt but, as a result of their losses, they risked becoming insolvent, and were put under FHFA conservatorship. They’ve since paid back most of the bailout money.

During the COVID-19 pandemic, Fannie Mae and Freddie Mac offered mortgage relief and protections to homeowners, including forbearance, loan modification programs and a moratorium on foreclosures and evictions.

Who regulates Fannie Mae and Freddie Mac?

Fannie Mae and Freddie Mac are regulated by two government agencies: the FHFA and the U.S. Department of Housing and Urban Development (HUD). Along with HUD and FHFA oversight, the President of the United States appoints five of the 18 board members at each entity. Further details of the regulation for Fannie Mae and Freddie Mac are laid out in two government acts: The Federal Nation Mortgage Association Charter Act and the Federal Home Loan Mortgage Corporation Corporation Act.

What this means for you

Since you can’t take out a mortgage directly from Fannie Mae or Freddie Mac, why should you care about these big names in the mortgage market? In addition to keeping the mortgage market humming and making homeownership more accessible overall, here’s how they can affect you:

They create more affordable financing options, including lower-down payment loan programs.
They foster competition among lenders, leading to lower rates.
They help set borrowing standards, influencing the qualifications you need to meet to obtain a mortgage.

To find out if you have a Fannie Mae- or Freddie Mac-backed loan:

Source: bankrate.com

Hanover Mortgages

The Refined Mortgage Lending Company & Home Loan Lenders

mortgage market

Apache is functioning normally

AOT, HELOC, Fee Collection, Bidding Tools; Conforming News; STRATMOR’s Ops Workshop; NYCB and Mortgage Prices

Apache is functioning normally

Three odd years

Make or break

Apache is functioning normally

Home prices are lowering in some major cities

It’ll be years before homes are affordable for the average buyer

Apache is functioning normally

What Is a Portfolio Loan?

Who Owns My Home Loan?

Portfolio Loans May Solve Your Financing Problem

Portfolio Loan Rates

Apache is functioning normally

Home Equity Appraisal, Market Research Tools; Planet Home Stats; Agency Changes

Apache is functioning normally

Change in cash flow

Loan amounts and HECM limits

The evolving landscape

Related

Apache is functioning normally

Key takeaways

What are Fannie Mae and Freddie Mac?

Differences between Fannie Mae and Freddie Mac

Intended purpose

Loan sourcing

Lending requirements

Loan programs

Similarities between Fannie Mae and Freddie Mac

Their creation and structure

Buy and sell mortgages

Increase loan availability

Standardize loans

Fannie Mae and Freddie Mac history

Fannie and Freddie in the 21st century

Who regulates Fannie Mae and Freddie Mac?

What this means for you

AOT, HELOC, Fee Collection, Bidding Tools; Conforming News; STRATMOR’s Ops Workshop; NYCB and Mortgage Prices

Option 1: Copy and send this link

Related

Three odd years

Make or break

Home prices are lowering in some major cities

It’ll be years before homes are affordable for the average buyer

What Is a Portfolio Loan?

Who Owns My Home Loan?

Portfolio Loans May Solve Your Financing Problem

Portfolio Loan Rates

Home Equity Appraisal, Market Research Tools; Planet Home Stats; Agency Changes

Option 1: Copy and send this link

Change in cash flow

Loan amounts and HECM limits

The evolving landscape

Related

Key takeaways

What are Fannie Mae and Freddie Mac?

Differences between Fannie Mae and Freddie Mac

Intended purpose

Loan sourcing

Lending requirements

Loan programs

Similarities between Fannie Mae and Freddie Mac

Their creation and structure

Buy and sell mortgages

Increase loan availability

Standardize loans

Fannie Mae and Freddie Mac history

Fannie and Freddie in the 21st century

Who regulates Fannie Mae and Freddie Mac?

What this means for you