How To Keep Loan Fees Low

Fanny v. Freddie

What They Do & Why You Should Care

By Therese A. Hartmann

I was sipping my morning coffee the other day when a client called to discuss a refinance, I had just done for her. She was happy and surprised that her loan was a “Fannie Mae loan.” It was instantly clear she didn’t understand what Fannie is/ does, so I launched into a caffeine fueled explanation. It made me think others might want to know.

Essentially, both Fannie Mae and Freddie Mac are government-backed mortgage companies that are intended to keep the market stable and home loans affordable. Fannie was established in 1938 by FDR while Freddie came about in 1970. Both purchase home loans from banks, enabling banks to have more free capital to finance borrowers. They repackage the loans and resell them on the secondary market. And the cycle continues.

What are some other helpful roles they play? Here is a little breakdown that will help you understand their impact…

• Stabilizing the Mortgage Market: During tough economic times — like now — both Fannie and Freddie keep the mortgage markets from imploding by guaranteeing payments on those mortgages. The result is more funds available and lower interest rates.

• Low-Income Homeownership: Both Fannie and Freddie have mortgage programs to assist low-to-moderate income borrowers as well as first-time home buyers. Because these loans are government backed, banks can relax their requirements allowing more people the opportunity to purchase a home.

• To the Rescue!: oth agencies have hung tight when times have gotten rough. In 2007, for example, when the sub-prime market collapsed, Fannie/Freddie lost around $8.7 BILLION to cover foreclosed loans. Unless the government stepped in to soften the blow, the economic failure might have been substantially worse.

• COVID-19 Response: Many homeowners struggled (and continue to struggle) to make their mortgage payments during the global pandemic. Under the CARES Act, the government provided financial relief through forbearance to homeowners whose loans were federally backed. Without this intervention, we could easily be experiencing significant foreclosures instead of the current boom we are enjoying.

Although things have changed since FDR’s original vision, making the dream of homeownership more widely available continues thanks to Fannie and thanks to Freddie. And now you know a little more about them!

Therese A. Hartmann has 20 years’ lending experience. She is a Licensed Broker, California Dept. of Real Estate #01048403, NMLS # 298291, affiliated with C2 Financial Corporation. For a free consultation, call Therese today at (805) 798-2158.

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