Many Americans are familiar with the terms Fannie Mae and Freddie Mac, but may not know exactly what they represent. Many believe Fannie Mae and Freddie Mac are branches of the federal government. The role of Fannie Mae and Freddie Mac is to guarantee conventional mortgage loans. After the real estate crash of 2008, the United States government took over operations of both of these previously privately held companies. In this blog, we will detail the functions of Fannie Mae and Freddie Mac, discuss a recent change in Freddie Mac‘s mortgage programs, and explain how to apply for a mortgage with Gustan Cho Associates. In the following paragraphs, we will be covering Freddie Mac’s new guidelines on rental payments reported on credit bureaus.
The Role of Fannie Mae and Freddie Mac in The Mortgage Markets
The role of Fannie Mae and Freddie Mac is to keep stability in the housing and mortgage markets. Here is a quick dive into Fannie Mae and Freddie Mac. We will keep this short and sweet as this can get boring quickly. The primary role of Fannie Mae and Freddie Mac is to reduce the risk for mortgage lenders who write mortgage loans that investors will eventually purchase. This is the main reason the 30-year fixed mortgage programs are available. If a loan is not eligible to be purchased by Fannie Mae or Freddie Mac, typically those mortgage loans are more expensive (higher rates and fees). An example of this would be a NON-QM mortgage loan. Fannie Mae and Freddie Mac are known as government-sponsored enterprises or GSEs.
What Role Did Fannie Mae and Freddie Mac Play in The Financial Crisis
Fannie Mae was created after the great depression when almost one in four Americans lost their home due to foreclosure. Banks did not have the money to lend, and the federal government created the Federal National Mortgage Association or FNMA, better known as Fannie Mae. They brought a new type of mortgage program to the market, a long-term fixed-rate mortgage product. Freddie Mac is a very similar organization that has been named the Federal Home Loan Mortgage Corporation or FHLMC. They were established in 1970 to expand the secondary mortgage market and reduce interest rate risk for lenders. While both of these enterprises are very similar, they do have slight differences in their conventional mortgage
guidelines.
Fannie Mae and Freddie Mac Largest Repurchasers of Mortgages To Keep Rates Competitive
What are the main functions of Fannie Mae and Freddie Mac? To keep stability in the mortgage markets by buying loans on the secondary market so lenders can offer low down payment mortgages at low rates. Fannie Mae and Freddie Mac regulate conforming (conventional) mortgage guidelines. They buy mortgage loans from lenders to hold in their portfolios or re-package mortgage loans as mortgage-backed securities to be sold on the secondary market. Mortgage lenders will utilize the money they get from selling mortgage loans to originate new loans. Fannie Mae and Freddie Mac help create a stable supply of money for mortgage funding.
Fannie Mae and Freddie Mac Provides Liquidity To Lenders By Buying Loans on The Secondary Market
Fannie Mae and Freddie Mac support the secondary market of residential mortgage loans by increasing the liquidity of mortgage investments creating more money available for residential mortgage financing. They promote mortgage credit by increasing the total money available for mortgage lending. Do many people ask who regulates Fannie Mae and Freddie Mac? Now that Fannie Mae and Freddie Mac are government-sponsored entities, they have oversight by the federal government. This creates a check and balance to avoid another housing crash as we saw in 2008. The President of the United States will appoint 5 of the 18 Board of Director members. Anyway, Freddie Mac is directly regulated by the U.S. Department of Housing and Urban Development (HUD) and the Federal Housing Financial Agency (FHFA). During the COVID-19 pandemic, the federal government stepped in and utilized its oversight to protect Americans from financial hardship caused by the pandemic. The CARES act offered protections for homeowners who had their mortgages securitized by Fannie Mae and Freddie Mac. They were protecting Americans from foreclosing on their home and allowed forbearance of all payments for up to six months, with an additional six months available if needed. The federal government directly saved thousands of Americans from losing their home during this crazy time we are living through. We all are feeling the financial strains caused by pumping the U.S. economy with billions of dollars. Saving people from losing their homes is very important.
Recent Update on Freddie Mac on Rental Payments Reported on Credit Bureaus
A recent change for Freddie Mac is renters can now have rental payments reported on credit bureaus for their on-time rent payments. Freddie Mac has recently announced they are starting a program to help renters purchase a home. Historically speaking, many renters find it hard to purchase a home because their credit profile may not be strong enough to purchase a home. Starting July 10, 2022, on-time rental payments will be factored into the Freddie Mac automated underwriting system. LPA or loan product advisor will now give weight to on-time rental payments when computing your overall risk to purchase a home.
How Can You Get Credit For Paying Rent on Time
This is a big deal because most of the time, rental payments are not reported on your credit report. On-time housing payments are a huge factor that will raise your credit score and more importantly ability to buy a home. Since many first-time homebuyers have little or no credit, or derogatory items in the past, it may be difficult for them to have a strong FICO score. With the borrower’s permission, a lender may now verify the most recent 12 rental payments to determine eligibility. The lender must review 12 months of on-time payments via bank statements, canceled checks, electronic transactions, or digital payments such as Venmo, PayPal, or Zelle. While this may not sound like much, this is a major change for Freddie Mac.
Rental Payments Reported on Credit Bureaus Is a Huge Plus For Renters
We expect Fannie Mae to follow a similar suit in the near future. A mortgage underwriter will factor in housing payment history when making their overall decision. This now allows renters to utilize their on-time payment history to strengthen their loan application without paying a third-party service to add their rental payments to the credit report. As always, Gustan Cho Associates will continue to update our readers with major announcements like these from any of the major mortgage agencies.
Rental Payments Reported on Credit Bureaus Can Be Used As Compensating Factor
As technology advances, we are making it as easy as possible to apply for a mortgage loan with our team. Since almost everything is now digitized, applying for a mortgage has never been easier. First and foremost, you will reach out to Mike Gracz at (800) 900-8569 or via email at mike@gustancho.com. You and Michael have an in-depth conversation about your mortgage qualifications. This step is incredibly important to make sure we find the best mortgage program for you and your family. After your initial consultation, you will be sent an online application link from a licensed loan officer in your state. When filling out the online application, it is important to be as thorough as possible. Our team will need to have a two-year history of your employment and verify where you have been living for the past 24 months. We will also need to verify your sources of income, and assets that will be used for the down payment and or closing costs. Once we have all this information, our team will get to work for you.
Lenders With No Mortgage Overlays
Part of the initial online application gives us permission to pull your credit reports. After we have your credit report, we will crunch the numbers based on your income and asset documentation. At this point, you will be sent a preapproval letter. If for some reason you do not qualify today, Gustan Cho Associates will put together I financial plan to help you qualify for a mortgage loan in the near future. Her team has seen every credit profile from 400’s all the way up to 800s and can put you on the path to qualify as soon as possible.
Rental Payments Reported on Credit Bureaus Is Now Traditional Credit Tradeline
As you can tell from this article, mortgage qualifications are constantly changing. That is why our team takes pride in keeping you informed on recent guideline changes. Besides conventional mortgage loans discussed in this blog, we also offer competitive FHA, VA, USDA, and specialty mortgage programs. We have a full line of NON-QM mortgage programs for individuals who may not fit into your conventional lending criteria. Our highly skilled loan officers are happy to offer these programs in most areas of our country. If you have any questions surrounding the programs, we have available, or this recent change in Freddie Mac’s qualifying criteria, please reach out to Mike Gracz on (800) 900-8569 we look forward to hearing from you.
