Is There A Difference Between Fannie Mae And Freddie Mac?

Majority of mortgage lenders are Fannie Mae mortgage lenders.  Chances are when you go to a mortgage lender to apply for a mortgage loan application, that particular mortgage lender will  be a Fannie Mae approved mortgage lender.  More than 90% of all mortgage lenders use Fannie Mae mortgage lending guidelines to get their mortgage loan applications approved.  Fannie Mae and Freddie Mac are the two giant government sponsored mortgage companies who buy mortgage loans that are originated and funded by banks, credit unions, and mortgage companies in the United States.  Fannie Mae has different mortgage lending guidelines than Freddie Mac and Freddie Mac has different mortgage lending guidelines than Fannie Mae.  If a mortgage lender cannot get an automated approval from DU, DESKTOP UNDERWRITER, which is Fannie Mae’s automated underwriting system, the mortgage lender can submit it to LP, LOAN PROSPECTOR, Freddie Mac’s automated underwriting system and may get an automated approval per Freddie Mac’s automated underwriting system, LP FINDINGS.  Not all mortgage lenders do both Fannie Mae and Freddie Mac.  Most mortgage lenders can only underwrite Fannie Mae mortgage 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 mortgage 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 the mortgage loan application through manual underwriting, I submit it to Freddie Mac’s Automated Underwriting System, LOAN PROSPECTOR ( LP ) and surprising 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 a mortgage loan applicant when a mortgage loan applicant is getting a gift.  Fannie Mae does not like gift funds, especially from mortgage loan applicants with lower credit scores and 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 so many times when a mortgage loan applicant 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 report 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, especially those mortgage loan applicant’s with debt to income ratios higher than 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 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 that the mortgage loan originator take the mortgage loan application 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 and the bankruptcy was discharged 2 years ago and 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 your mortgage application with this error but Freddie Mac may approve it.

 FHA Lending Guidelines And Automated Approval

Fannie Mae and Freddie Mac lending guidelines on FHA loans is that they need to follow the FHA 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 mortgage lender, make sure that the particular mortgage lender you choose is able to do both Fannie Mae and Freddie Mac mortgage loans.

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2 Comments

  1. 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.

    • 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.