The Federal National Mortgage Association (FNMA) lovingly known as Fannie Mae, is a government-sponsored enterprise (GSE) that was created by Congress to encourage homeownership and provide liquidity to the mortgage market.
During the Great Depression as part of the New Deal, Fannie Mae got established in 1938, with the sole purpose to aid low- to moderate-income borrowers to obtain financing for a home.
Fannie Mae is a secondary mortgage market participant, so it does not originate mortgage loans.
Fannie Mae’s job is to keep funds flowing to lenders by purchasing or guaranteeing mortgages issued by banks, credit unions, thrifts, and other financial institutions.
Fannie Mae is one of the two large purchasers of mortgages in the secondary market. Its sibling Freddie Mac is the other purchaser also called the Federal Home Loan Mortgage Corporation, which also is a GSE chartered by Congress.
Fannie Mae, pools mortgages to form mortgage-backed security (MBS) after purchasing them on the secondary market.
The institutions, like investment banks, insurance companies, and pension funds, purchase Fannie Mae’s mortgage-backed securities.
Fannie Mae also has its own portfolio, which is called a retained portfolio, it invests in its own and other institutions’ mortgage-backed securities. A debt called agency debt is issued by Fannie Mae to fund its retained portfolio.
Liquidity is created for lenders by Fannie Mae’s investing in the mortgage market, which in turn allows them to underwrite or fund additional mortgages.
Last year, Fannie Mae provided $1.4 trillion in liquidity to the mortgage market, this helped low-income Americans to buy, refinance, or rent approximately six million homes.
From 1968 Fannie Mae has been publicly trading, it traded on the New York Stock Exchange (NYSE) till 2010.
Fannie Mae was forced to delist its shares for failure to meet the minimum closing price requirement mandated by the NYSE after the Great Recession and the impact it had on the housing market. Now Fannie Mae trades over-the-counter.
Fannie Mae and Freddie Mac were taken over by the government through a conservatorship of the Federal Housing Finance Agency (FHFA) in the second half of 2008.
To keep both agencies debt-free the U.S. Treasury provided $191 billion, which has since been repaid.
The terms governing Fannie Mae’s dividend obligations were changed in August 2012, so that the U.S. Treasury claimed any profits at the end of each quarter and if there is a deficit it provided capital.
The Treasury and FHFA publicized in September 2019, that Fannie Mae and Freddie Mac could begin keeping their earnings to hold up capital reserves of $25 billion and $20 billion, respectively.
This move was progressing toward transitioning the two out of conservatorship.
A mortgage lender must comply with the statement on Subprime Lending which has been issued by the federal government if they want to do business with Fannie Mae.
The statement takes care of several risks associated with subprime loans, like the low introductory rates followed by a higher variable rate, limits on how much can the interest rate go up, partial to no borrower income documentation, and product features that make frequent refinancing of the loan possible.
The mortgages which are purchased and guaranteed by Fannie Mae must meet strict criteria.
The limits are set by FHFA. The borrower has to go through an approved lender to obtain a loan that is backed by Fannie Mae.
The lenders must meet eligibility and underwriting criteria along with avoiding subprime loans to ensure the credit quality of the financing.
After finding a lender who is qualified to issue a Fannie Mae-backed loan, the borrower will be guided in filling out a Uniform Residential Loan Application where they will need to gather and provide financial information and documentation.
The documents include a record of employment and the borrower’s gross income and statements, like a W-2 or 1099 form to back these up.
The borrower will also have to provide a total of their monthly debt obligations, like car payments, balances on credit cards, alimony, and child support.
The lenders prefer to follow the 28/36 Rule, which means less than 28% of the household should be spent on monthly income on housing expenses and less than 36% on debt servicing which includes mortgages and car loans.
The maximum debt-to-income (DTI) ratio that Fannie Mae will accept is 36%, and if the borrower meets credit score and reserve requirements then it can be as high as 45%.
If the borrower’s DTI ratio is too high, then they can make a larger down payment so to reduce their monthly costs. Even if a 20% down payment is considered ideal, some borrowers can put as little as 3% down.
A minimum credit requirement is also needed to be met by homebuyers to be eligible for Fannie Mae-backed mortgages.
For a single-family home that will be a primary residence, a FICO score of a minimum of 620 for fixed-rate loans and 640 for adjustable-rate mortgages (ARMs) is required.
When the FICO score is higher, then they are more eligible for the lowest available interest rates.
If there is a foreclosure on mortgages owned or invested by Fannie Mae, or when the properties are acquired through deeds in lieu of foreclosure or forfeiture, Fannie Mae tries to sell the properties in a timely manner to lower the potential impacts on the community.
In this program home, buyers and investors can search and make offers on these properties. HomeReady Mortgage is a reasonable way for creditworthy homebuyers to finance their new homes.
Many times special financing is available which includes closing cost assistance, 3% down payments, and improvement costs all wrapped into the loan.
The local real estate professionals are used by Fannie Mae to prepare, maintain, and list the properties for sale.
Most listings have photographs, property descriptions, and other details, like school and neighborhood information.
Fannie Mae has been offering low-income mortgage holders a new refinance option from June 5, 2021, through a program called RefiNow, this program will reduce their monthly payments and interest rates.
To qualify for this program the homeowners must be earning at or below 80% of their area median income (AMI).
This program removes some of the hurdles of the traditional refinancing process and helps homeowners refinance by making homes cheaper, and promoting sustainable homeownership.
If homeowners need to know if Fannie Mae owns their mortgage or not, they need to visit Fannie Mae’s Loan Lookup Tool. Several benefits are offered to the homeowners by the RefiNow program.
The program brings a reduction of a minimum of 50 basis points in the homeowner’s interest rate and saves at least $50 in their monthly mortgage payment.
Secondly, if an appraisal was obtained for the transaction, then Fannie Mae provides a $500 credit to the lender at the time that the loan is purchased and this credit must be passed on to the homeowner by the lender.
A homeowner must meet the following qualifications in order to qualify for RefiNow:
A government-sponsored enterprise (GSE) created by Congress is what Fannie Mae is.
Fannie Mae only buys and guarantees mortgages through the secondary mortgage market, it doesn’t originate or give out mortgages to homeowners who are looking for funding.
Fannie Mae creates more liquidity for lenders by investing in mortgages.
Fannie Mae or FNMA is a nickname for Federal National Mortgage Association. It was established in 1938.
It is a Government-sponsored Enterprise (GSE). In 1968, Fannie Mae ceased to exist as a government entity and became a quasi-governmental, federally charted corporation to buy mortgages other than those insured by the Federal Housing Administration, otherwise known as FHA.
Freddie Mac or FHLMC is a nickname for Federal Home Loan Mortgage Corporation. Freddie Mac is also a government-sponsored enterprise (GSE) that was brought into existence in the year 1970 by Congress.
It provides competition to Fannie Mae and provides funds availability in the secondary mortgage market.
Fannie Mae’s purpose is to create a secondary market for the purchase and sale of mortgages. The secondary mortgage market is where home loans and servicing rights are bought and sold between lenders and investors.
Most home loans are eventually sold to the secondary mortgage market. The secondary mortgage market exists because the bank has used its own funds to make the loan.
So they will sell the loan to the secondary market to replenish their money available to make more home loans. Often these loans are sold to institutions such as Fannie Mae.
Freddie Mac also works in the same way as Fannie May in the secondary market with slightly different qualification Guidelines.
Both the entities’ role is to provide stability and liquidity for the respective banks and lenders that they purchase from.
Fannie Mae purchases pools of mortgages from commercial lenders and resells them in the form of mortgage-backed and other securities to investors. Mortgage-backed securities are bonds backed by payments on mortgage loans.
These securities are then sold to the investor on Wall Street who including governments, pension funds, insurance companies, and hedge funds.
Purchases Are generally restricted to conforming loans, which are loans that meet certain size limits and other conditions.
Freddie Mac also works in the same way as Fannie May in the secondary market with slightly different qualification Guidelines.
Freddie Mac mainly purchases the loans from smaller “thrift” banks and then sell them off to the secondary mortgage market.
The concept behind Fannie Mae and Freddie Mac may seem complicated, but it’s actually quite straightforward.
Fannie Mae and Freddie Mac purchases loans from banks bundle them and sell them off on the market as more significant, consolidated financial instruments.
This process was established by the federal government to enable banks to wipe off their debts of the books while allowing Fannie Mac and Freddie Mac to profit from relatively low investments.
Both the entities’ mortgage-backed securities are similar to bonds and have varying maturities and coupon rates.
The securities generally pay interest as well as principal to the investor monthly, which means the investor earns interest on a decreasing principal amount over time.
Both the entities are exempt from Securities and Exchange Commission regulations and are not subject to state or local income taxes.
Fannie Mae and Freddie Mac guarantee the payment of interest and principal on its mortgage-backed securities.
If there are defaults on the underlying mortgages, these entities will make required monthly payments on the securities.
Looking at things if you drill down the information, you would conclude that both Fannie Mae and Freddie Mac are more similar in terms of working than they are different.
Both of them purchase the loans from the banks and sell them on the secondary mortgage market with few differences in their guidelines.
In other words, both entities are competing against each other in the same market.
They provide more stability in the current mortgage market, especially in the conventional loans market as they are backed either by Fannie Mae or Freddie Mac.
As it is the dream of every American to own a home not many have attained it. With the high-interest rates, strict mortgage qualifications high rents, student loan debt, and overheated real estate markets even those with well-paid salaries find it difficult to save for a down payment and closing costs.
With these issues being faced by maximum Americans, Fannie Mae has developed a comprehensive program, which has low down payment options, so they can meet the needs of prospective homebuyers.
HomePath Ready Buyer Program is one aspect of such an option.
Justin Herring, the Director of Product Development with Rocket Mortgage says this program is a boon for first-time homebuyers.
Herring says, even though the end date for this program hasn’t been announced by Fannie Mae, clients to take advantage of this great offer now, while the rates are still relatively low.
The first-time homebuyers get up to 3% of the purchase price back in the form of closing cost assistance on Fannie Mae-owned HomePath properties by this HomePath Ready Buyer program.
Fannie Mae which is called The Federal National Mortgage Association is a government-sponsored enterprise with a twofold mission.
In 1938, during the Great Depression, Fannie Mae was created, to keep mortgage lenders liquid.
The mortgages originated by lenders are bought by Fannie and then are repackaged for sale to investors on the secondary mortgage market.
Also by offering incentives and assistance during the mortgage application process, Fannie Mae helps prospective home buyers with low- and moderate-income to be able to afford homeownership.
Fannie Mae takes back the ownership of a borrower’s home if they default on the Fannie Mae-backed qualifying mortgages, through a deed in lieu of foreclosure transfer.
The defaulted borrowers who are not able to catch up on their mortgage payments sign their homes over to Fannie Mae to avoid having a foreclosure on their credit history.
Because foreclosures can take a long time, Fannie Mae gets these houses back onto the market quickly so that the house does not sit vacantly or suffer damage by the owners who know they will ultimately face eviction.
If the foreclosure doesn’t sell at auction then they end up back in Fannie Mae’s portfolio, to be listed on their site.
The general public can get access to these homes on sale offered by Fannie Mae through HomePath.com. Once you find your next home on the site you need to:
Contact A Real Estate Agent to buy a home from HomePath.com you need to work with a real estate agent.
To help make sure homebuyers understand exactly what they’re buying when they purchase a real estate-owned (REO) home through HomePath Fannie Mae insists on using the real estate agent.
You as a buyer must complete 4-6 hours of The HomePath Ready Buyer class which is offered online.
The fee to complete the course is $75 which will be reimbursed if you close on a HomePath home as part of your closing cost assistance. The course cover topic like –
You will print out your Certificate of Completion once you complete the HomePath Ready Buyer program, and give it to your real estate agent. They will submit the certificate along with your offer on a HomePath home.
You’ll get a credit of up to 3% of the purchase price on closing day, toward your closing costs.
Supposing you’re buying a home for $200,000. Your credit would be $6,000, including the online signing up fees of $75.
Also because you won’t be required to have an appraisal completed for the lender’s consideration your closing costs are generally lower.
But you don’t get any additional credit because your closing cost credit exceeds your actual closing costs. Saving you a huge sum of cash on closing day.
The few eligibility requirements are:
It must be a Fannie Mae-owned HomePath property.
A home that was originally purchased with a mortgage, and Fannie Mae probably purchased that mortgage from the originating lender and if the homeowner defaulted, and signed the deed in lieu of the property didn’t sell at auction, then the home is offered for resale by Fannie Mae.
Fannie Mae is not interested in managing properties but in the business of buying mortgages from lenders so it prices homes at a discount so that they sell quickly.
You’ll only be required to make a 3% down payment when you apply for a HomePath Ready Buyer, Home Ready, or a Fannie Mae 97% LTV Standard mortgage for first-time buyers to buy a HomePath home.
The Chenoa Fund, Community Seconds, or local resources can also be used for assistance in securing down payment.
Down payment assistance options that require repayment or a lien to be placed on the property are not funded by Rocket Mortgage.
You can borrow money with a HomeStyle Renovation or HomeStyle Energy Loan if you find a HomePath home that is in need of renovations or energy-efficiency upgrades.
At the closing of the primary mortgage, these loans are issued, and they can be up to 75% of the home’s value after the renovations are completed or 75% of the purchase price with added renovation costs.
Your payments are wrapped into one monthly payment with no second mortgage or home equity line of credit (HELOC).
You must pay for private mortgage insurance, or PMI, on a conventional loan, or mortgage insurance premiums, or MIPs, on FHA loans when you have less than a 20% down payment, should you default on the loan these insurance policies protect the lenders.
With all conventional mortgages, including those issued by Fannie Mae, the PMI can be canceled when the mortgagee reaches the threshold of 20% equity with a written request and confirmation of property value.
When you complete the online HomeReady Home Buying course, 3% of the purchase price is credited toward your closing costs when you purchase a HomePath home as a first-time homebuyer.
As part of your closing cost assistance the course fees of $75, are returned to you when you close on a HomePath home.
The process is very simple after you complete the course, and print your certificate of completion you give it to your real estate agent to submit along with your offer.
Since the HomePath homes are sold in as-is condition, meaning neither will Fannie Mae make any repairs to the property nor will it offer any warranties?
So it is up to home buyers to make sure that they understand exactly what they are taking on when they purchase a HomePath property.
Get a thorough home inspection to be sure what are the repairs that you need to take care of.
Precisely the reason, HomePath requires prospective home buyers to work with an approved real estate agent, to see that home buyers are not taking on more repairs than they can handle.
The agent ensures that all problems are fully disclosed to you and you understand exactly what you are getting into.
It is also not an easy task to find a HomePath property in your area to buy under this program.
The HomePath Ready Buyer program was introduced to help Fannie Mae get a lot of foreclosed homes off their books.
You may have to expand your search area and be patient to find a HomePath property that works for you.