Role Of Fannie Mae And Freddie Mac Versus HUD
This Blog On Fannie Mae And Freddie Mac Versus HUD Was Written By Gustan Cho NMLS 873293
The mortgage business is extremely complex, even for mortgage professionals. This complex industry went through a complete overhaul after the 2008 Real Estate and Financial Collapse of 2008 where new government sponsored agencies were created. Dodd Frank went into the law, SAFE ACT was created and launched and Fannie Mae and Freddie Mac went through a complete overhaul. Here are the various agencies and what type of loan program they are in charge of regulating and setting up mortgage guidelines:
- Fannie Mae and Freddie Mac are two mortgage giants in the United States that is in charge of setting up Conventional Mortgage Guidelines.
- The typical mortgage consumers do not come in direct contact with the role Fannie Mae and Freddie Mac.
- The Role Of Fannie Mae and Freddie Mac work with mortgage lenders and not with individual mortgage loan borrowers.
- HUD, the United States Department of Housing and Urban Development, is in charge of FHA. The Federal Housing Administration is a subsidiary of HUD.
- HUD, like Fannie Mae and Freddie Mac, is in charge of setting up mortgage guidelines for FHA Loans whereas Fannie Mae and Freddie Mac is in charge of Conventional Mortgage Guidelines.
- Fannie Mae and Freddie Mac are two mortgage giants that play an important role in our mortgage lending industry and our economy.
Fannie Mae And Freddie Mac Versus HUD: Why Do They Exist?
Basic Role Of Fannie Mae And Freddie Mac Versus HUD
The role of Fannie Mae and Freddie Mac is to purchase mortgage loans originated by banks, credit unions, and mortgage bankers. Banks, credit unions, and mortgage bankers need to sell the loans they originated to relieve their inventory and lines of credit in order to generate more mortgage loans. The Role Of Fannie Mae and Freddie Mac, together, are responsible in securing close to $6.0 trillion in mortgage loans which make up almost 50% of this country’s total mortgage loans.
Fannie Mae And Freddie Mac: Difference Between Fannie Mae And Freddie Mac
Both the role of Fannie Mae and Freddie Mac’s purpose is to purchase and guarantee mortgage loans. Fannie Mae was formed and created under the watch of Franklin D. Roosevelt back in 1938 to insure that mortgage funding was sufficient and available at all times, especially during periods of the depression and tougher economic times. Fannie Mae became a public enterprise back in 1968 and was publicly traded. Freddie Mac was formed back in 1970. The reason Freddie Mac was created was to create competition to Fannie Mae and the purpose was so that Fannie Mae would not have a monopoly on mortgage loans. Mortgage loans that both Fannie Mae and Freddie Mac purchased were all bundled up to form mortgage backed securities, also known as MBS.
2008 Real Estate Meltdown And Fannie Mae And Freddie Mac
Both Fannie Mae and Freddie Mac came into financial crisis due to the real estate and credit market collapse. As housing values tanked, many mortgage loan borrowers defaulted on their mortgage loans. Institutional investors backed out of investing in mortgage backed securities and both these institutions were nearly bankrupt and the government had to step in to bail them out. Without the government stepping in, Fannie Mae and Freddie Mac would have gone bankrupt and the housing crisis would have been detrimental. The United States government, American taxpayers, is responsible in guaranteeing all mortgage loans issued by both Fannie Mae and Freddie Mac. Bottom line is that if mortgage loans held by Fannie Mae and Freddie Mac defaults, the American taxpayers are ultimately responsible.
Objectives Of Fannie Mae And Freddie Mac Versus HUD
Fannie Mae and Freddie Mac objective is to purchase mortgage back securities, relieve mortgage lenders’s inventory of mortgage loans so they can reuse their warehouse lines of credit to originate more mortgage loans, stimulate home ownership, attract investors, but yet, minimize defaults on mortgage loans. The real estate and credit market crash of 2008 sky rocketed foreclosure rates. Prior to the financial and real estate collapse, both Fannie Mae and Freddie Mac had lenient mortgage lending guidelines such as stated income mortgage loan programs which resulted in them backing much riskier mortgage loans. The result was record default rates in mortgage loans and historical high foreclosure rates and plummeting housing values. Here are the main differences between Fannie/Freddie and HUD:
- Fannie and Freddie buys Conventional Loans that conform to their Conventional Guidelines
- HUD does not purchase FHA Loans
- HUD will only insure FHA Loans to lenders that meet FHA Guidelines in the event of borrower default