fbpx

What Is The Difference Between Fannie Mae And Freddie Mac

2

What Is The Difference Between Fannie Mae And Freddie Mac

This BLOG On What Is The Difference Between Fannie Mae And Freddie Mac Was UPDATED On May 20th, 2018d

The two mortgage giants that is responsible of purchasing conforming loans are the following:

  1. Fannie Mae
  2. Freddie Mac

Fannie Mae and Freddie Mac are called government sponsored enterprises (GSE) and are regulated by the Federal Finance Housing Agency (FHFA).

Majority of mortgage lenders are Fannie Mae mortgage lenders.

  • Chances are when borrowers apply for mortgage, lender, particular mortgage lender will submit file to Fannie Mae
  • More than 90% of all lenders use Fannie Mae when running conventional loans
  • Fannie Mae and Freddie Mac are the two giant government sponsored mortgage companies
  • Their role is to purchase mortgage loans are originated and funded by banks, credit unions, and mortgage companies in the United States
  • Fannie Mae has different mortgage guidelines than Freddie Mac
  • Freddie Mac has different lending guidelines than Fannie Mae
  • If a lender cannot get an automated approval from DU, DESKTOP UNDERWRITER, which is Fannie Mae, the lender can submit it to LP, LOAN PROSPECTOR, Freddie Mac’s AUS
  • May get an automated approval per Freddie Mac’s automated underwriting system, LP FINDINGS
  • Not all lenders do both Fannie Mae and Freddie Mac
  • Most lenders can only underwrite Fannie Mae loans and not Freddie Mac
  • I am able to do both, Fannie Mae and Freddie Mac mortgage loans
  • So if I cannot get an approve/eligible per DU FINDINGS, I can run it through LP and see if I can get an approve/eligible per LP FINDINGS
  • There is a difference between Fannie Mae and Freddie Mac lending guidelines

Difference Between Fannie Mae And Freddie Mac

There are times where I expect an approve/eligible per DU FINDINGS, FANNIE MAE APPROVE/ELIGIBLE PER AUTOMATED UNDERWRITING SYSTEM. But for whatever reason cannot get an approve/eligible per FANNIE MAE, If I get a referred/eligible per DU FINDINGS, prior to taking file through manual underwriting, I submit it to Freddie Mac’s Automated Underwriting System, LOAN PROSPECTOR ( LP ). Surprising I can sometimes get an approve/eligible per LP FINDINGS

  • Countless of times I have run into situations where I get a denial with Fannie Mae but get approved with Freddie Mac
  • There is a difference between Fannie Mae ad Freddie Mac automated underwriting system
  • Many times, Fannie Mae has difficulty with accepting borrowers getting a gift
  • Fannie Mae does not like gift funds
  • Especially from mortgage loan applicants with lower credit scores, higher debt to income ratios and limited credit trade lines on their credit report
  • Freddie Mac is not as picky with regards to gift funds like Fannie Mae
  • Many times when borrowers gets denied by Fannie Mae, they may get approved with Freddie Mac
  • Fannie Mae may turn down a mortgage application with errors on the credit reportt
  • But Freddie Mac may approve that file turned down by Fannie Mae

Pros And Cons On Fannie Mae And Freddie Mac

Freddie Mac is more lenient with mortgage loan applicants with poor credit history and lower credit scores.

  • Freddie Mac is also more lax on higher debt to income ratios
  • This is so especially those mortgage loan applicant’s with debt to income ratios as high as 50% DTI
  • Freddie Mac is also more aggressive and understanding on mortgage applicant’s who has limited credit trade lines and credit history
  • Fannie Mae likes to see a minimum of 3 aged credit trade lines
  • If the mortgage loan applicant has less than 3 credit trade lines and cannot get an approve/eligible per DU FINDINGS, I suggest the loan officer to submit to Freddie Mac

Credit Report And Automated Underwriting System

Fannie Mae does not recognize errors on a consumer’s credit report like Freddie Mac does.

  • For example, say a mortgage loan applicant filed bankruptcy
    • The bankruptcy was discharged 2 years ago
    • All of the creditors were part of his or her bankruptcy
    • But one of the credit trade lines that was included in the bankruptcy is still reporting as active
  • Fannie Mae may deny mortgage application with this error but Freddie Mac may approve it

 FHA Lending Guidelines And Automated Approval

Fannie Mae and Freddie Mac lending guidelines differs than FHA loans. With FHA Home Loans, Underwriters need to follow the FHA TOTAL SCORE CARD, which are FHA lending guidelines.  The main difference between Fannie Mae and Freddie Mac is how Fannie Mae automated underwriting system interprets a mortgage loan application versus how Freddie Mac’s Automated Underwriting System interprets it.  When choosing a lender, make sure that the particular mortgage lender you choose is able to do both Fannie Mae and Freddie Mac mortgage loans.

Related> Fannie Mae

Related> Fannie Mae offers 3% down payment mortgages

  1. Michelle Robichaud says

    This is an unrelated question. How long following an investment property short sale must one wait before they can refinance a commercial loan? Thank you.

    1. Gustan Cho says

      Investment properties are not conforming loans and do not fall into the waiting period guidelines for Fannie Mae and Freddie Mac. As long as you have a good letter of explanation, you should not have a waiting period after a short sale on a commercial property, especially if the commercial loan was a non-recourse loan. Depending on the commercial lender, there may be waiting period after a short sale on commercial loans, however, most commercial loans are portfolio loans where the lender will hold the loan in their portfolio.

Leave A Reply

Your email address will not be published.

CALL NOW