Fannie Mae Versus Freddie Mac

Gustan Cho Associates

Fannie Mae Versus Freddie Mac

Many people have heard Fannie Mae and Freddie Mac.  Both Fannie Mae and Freddie Mac are the two mortgage giants that buy mortgage loans from mortgage companies and package them up and resell them to the secondary market as Mortgage Backed Securities also referred as MBS.  Many folks wonder whether Fannie Mae and Freddie Mac are related and what functions each of them have.  The bottom line is that Fannie Mae is independent of Freddie Mac and they are two separate institutions.

Role Of Fannie Mae And Freddie Mac

Fannie Mae and Freddie Mac are in similar businesses and do basically the same thing.  Both mortgage giants by mortgage loans that meet their mortgage lending guidelines from banks, credit unions, mortgage companies, and institutions.  Both Fannie Mae and Freddie Mac either hold the mortgage loans they purchase or re-sells them at the secondary market as mortgage backed securities to Wall Street and institutional investors.

Difference Between Fannie Mae Versus Freddie Mac

Fannie Mae was created first back in 1938 when U.S. President Franklin Delano Roosevelt era of the New Deal.  The New Deal gave birth to the Federal National Mortgage Association which was Fannie Mae.  The objective of the creation of Fannie Mae was to stimulated the United States housing market and promote home ownership during the era of the Great Depression..  Fannie Mae eventually went private back in 1968, however, it’s main objective is to improve, stimulate, and increase homeownership of hard working Americans of all social economic classes from low income to moderate income to higher income folks.

The main difference between the two organizations is found in the details of when and why they were created.

Creation Of Freddie Mac

To avoid a mortgage monopoly and create competition for Fannie Mae, the United States Congress has created teh Federal Home Loan Mortgage Corporation, which is Freddie Mac, in 1970.  The creation of Freddie Mac was to stimulate competition and avoid a monopoly and stabilize the mortgage markets in the United States.

What’s Better Between Fannie Mae Versus Freddie Mac

Both Fannie Mae and Freddie Mac serves the same purposes; buying home loans from retail mortgage lenders so they can clear their warehouse line of credit so they can originate and close more home loans to the public.  Fannie Mae have their own mortgage lending guidelines and Freddie Mac has their own mortgage lending guidelines.  Fannie Mae does not allow non-occupant co-borrowers while Freddie Mac does.  Fannie Mae always requires two years tax returns while Freddie Mac may allow one year tax returns for some conventional mortgage loan borrowers.  Fannie Mae will require that you close out credit card accounts when you need to pay down credit card balances during the mortgage loan approval process when Freddie Mac does not require to close out the credit card accounts.  Most mortgage lenders are just Fannie Mae approved and not Freddie Mac approved.  Depending on the mortgage loan applicant’s individual circumstances, Fannie Mae may be better or Freddie Mac may be better.  There are times where a mortgage loan applicant cannot get an Automated Underwriting System Approval with Fannie Mae but can get an automated approval with Freddie Mac and vice versa.  Fannie Mae may have tougher guidelines on condos or different types of properties than Freddie Mac or vice versa.  Again both Fannie Mae and Freddie Mac serve the same purpose, to purchase home loans from mortgage lenders to relieve lenders from their wholesale lines of credit so they can originate and close more loans.

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