Among the first names rookie home buyers run across in their search for loans, homes, and agents are Fannie Mae® and Freddie Mac®. What they may not know is that these two corporations make it possible for many to buy housing that wouldn't otherwise have the opportunity.

Fannie Mae and Freddie Mac operate independently each with a preferred lender base, but both are in the business to make sure that as many consumers become homeowners as possible. They are the two largest companies in the United States that purchase almost all of the loans under $227,150. Loans purchased by Freddie and Fannie are "securitized" by these corporations. That means that they package together loans of similar term and interest rate into marketable securities known as mortgage backed bonds, which are then sold and traded on the open market. With the average home coming in at about $136,000, and homes for first time homebuyers ranging about $110,000 or less, you can see that Fannie Mae and Freddie Mac are the most important loan underwriters in the nation.

Underwriters are the institutions that guarantee that when a mortgage lender makes a loan that the loan is of favorable enough terms that the terms of the loan can be met by the borrower, and that the loan can be funded. When a loan is originated, the mortgage lender will pass the information along to Fannie Mae or Freddie Mac to see if the companies would be willing to purchase the loan. An underwriter will not guarantee a loan that is too expensive for the home buyer to make the payments or on a home that is significantly overpriced, unsafe, or otherwise unmarketable.

And that is where Fannie Mae and Freddie Mac are at their most helpful. Both companies are dedicated to making home ownership possible for as many people as possible, and both actively work to make home loans possible by working to improve borrowers abilities to qualify, incentifying borrowers, and instituting programs that enable families to find and purchase lower cost housing.

Who Are These Guys?

Fannie Mae is a public shareholder-owned company that works to make sure mortgage money is available for people in communities all across America.  The company does not lend money directly to home buyers, but instead works with lenders to make sure they don't run out of mortgage funds.

Created by Congress in 1938 to bolster the housing industry during the Great Depression, Fannie Mae began as part of the Federal Housing Administration (FHA) and was authorized to buy only FHA-insured loans to replenish lenders' supply of money. Then it was known as the Federal National Mortgage Association (FNMA) until it became better known as Fannie Mae.

Today, Fannie Mae operates under a congressional charter that directs the company to increase the availability and affordability of homeownership for low-, moderate-, and middle-income Americans. Fannie Mae is authorized to buy Federal Housing Administration (FHA) insured mortgages, thereby replenishing the supply of lendable money. 

Freddie Mac is also a publicly held corporation, chartered by Congress in 1970. Freddie Mac came into being as the Federal Home Loan Mortgage Corporation (FHLMC) with the mission to create a continuous flow of funds to mortgage lenders. By supplying lenders with the money to make mortgages and packaging the mortgages into marketable securities, Freddie Mac also helps to sustain a stable mortgage credit system which in turn, reduces the mortgage rates paid by homebuyers. Over the years, Freddie Mac has been responsible for opening the door to homeownership for one out of six home buyers in America who would not have qualified otherwise.

By buying single-family home loans from mortgage bankers, savings and loan associations, commercial banks, credit unions, state and local housing finance agencies (HFAs), and other financial institutions, Fannie Mae and Freddie Mac both provide a steady stream of mortgage funds available for lending to America's homebuyers.

Neither Fannie Mae nor Freddie Mac receive government backing, but consumers can thank them for such things as their efforts to make affordable housing more available through numerous programs, quicker loan approvals and easier terms for first time or lower income borrowers.

Affordable Housing

Both Fannie Mae and Freddie Mac work behind the scenes of the loan industry, but they also help consumers directly.

HomePath.com is Fannie Mae's consumer site, a home page devoted to educating the consumer about the home buying process. A terrific project preparation device, HomePath.com covers three basic areas:

HomeStarterPath allows consumers to compare renting with owning, study various mortgages, see how much house you can afford, and other helpful topics.

Step two is HomePurchasePath which helps you begin the process of buying a home, or assists you if you are already on the way with information on how to shop for a lender, steps in the mortgage application process, loan closing activities, and more.

If you are already a homeowner and want to refinance your current mortgage, you will enjoy clicking on the HomeRefinancePath which is designed to help you decide when to refinance, steps in the refinance process, how much refinancing may cost, and other considerations.

One way Freddie Mac helps consumers is in the marketing of foreclosed homes, an opportunity for many home buyers to find a bargain and get loan approval in a pleasant one-stop shop atmosphere.

Freddie Mac's consumer site is HomeSteps.com, and you will hardly be able to tell it has anything at all to do with the mortgage underwriter. Deliberately distancing itself from the "f" word - foreclosures - the site offers a direct route to consumers to search for and finance "affordable" housing. Although affordable housing may be a euphemism for foreclosed homes, in reality, they have the presentation of any other Realtor listing right out of the local MLS. The difference is that you can search for them in Freddie Mac's proprietary database.

Another advantage is special financing and in some cases, buyer incentives. The homes are cleaned up with up to $5,000 in improvements then priced to sell in competitive markets. Not only can buyers have access to these "bargain" homes, they can be purchased through loans with competitive interest rates, lower title and escrow fees, and no mortgage insurance. Only 5% down is required on all available homes.

Quicker Loan Approvals

Two years ago the mortgage industry was revolutionized by the development of the first automated systems to underwrite loans and provide mortgage approval, reducing loan approval waiting periods from days to mere hours and ev en minutes. These systems were developed by Fannie Mae and Freddie Mac, and are recognized by most banks and mortgage lenders.

Because consumers can act as their own loan officers, they can save significant dollars in the process.

One example is iQualify.com(tm), through which Fannie Mae shares its state of the art technology in electronic underwriting services. What that means to you, the consumer, is the difference between loan qualification and loan approval - in as little as four minutes. The first Internet site to provide on-line loan approvals, iQualify.com has taken the loan origination experience to new levels of service for the consumer, enabling the consumer to shop with confidence for the home of their dreams and feel good about the lender and mortgage decisions they have made.

Friendly competition

Both Fannie Mae and Freddie Mac sponsor foundations that perform outreaches to communities in the realm of housing and community development through housing programs, grants and home buying information and facilitation. Their web sites are an extension of these services.

Although Freddie Mac and Fannie Mae have the same charters, Congressional mandates and regulatory structures, the two companies enjoy a friendly competition that ensures that the benefits of the secondary market are passed on to homebuyers.

Published: November 16, 1998

Use of this article without permission is a violation of federal copyright laws.

Blanche Evans is the award-winning senior editor of Realty Times, the Internet's leading independent real estate news service. She is featured daily on the Realty Times Video Network in the "Realty Viewpoint" segment. Blanche has been named one of the "25 Most Influential People In Real Estate" by REALTOR Magazine, and has been twice recognized as a "notable." In 2005, she was named "Top Reporter Covering the NAR" by Delahaye-Bacon's. Blanche is a renowned author of five real estate books. Her newest, Bubbles, Booms and Busts: Make Money In Any Real Estate Market, McGraw-Hill, was rave-reviewed by The New York Times. She was also selected from hundreds of real estate experts to contribute to Donald Trump's book, Trump: The Best Real Estate Advice I Ever Received: 100 Top Experts Share Their Strategies, Rutledge Hill Press, and is featured on page 68. Order Now Review - Honors In 2006, Blanche was selected among scores of candidates to author two consumer real estate guidebooks for the National Association of Realtors: The NAR Guide to Home Buying, and The NAR Guide to Home Selling, Wiley & Sons. She is currently planning two new books for the NAR and its members.       Known for her keen insight into real estate industry issues and for her ability to make complex subjects easy to understand, Blanche is a sought-after keynote and continuing education speaker. Real estate organizations from MLSs, to brokerages, to franchisors, to associations hire her to provide up-to-the-minute analysis of real estate industry news and advice on how to improve revenues. Her passionate delivery, peppered with stinging wit, is a huge hit with audiences and fans. Don Klein, CEO Greater Nashville Association of Realtors, Blanche Evans, Richard Courtney, president 2007, GRAR "The GNAR membership meeting last week featured Blanche Evans as the keynote speaker. Her comments and insights resonated extremely well with those in attendance and we have had many requests for copies of her PowerPoint Presentation. She was a terrific part of the membership meeting and convention program!" - Don Klein, CEO Greater Nashville Association of Realtors Coverage from WSMV, Nashville - 8-14-2007 That Interview Guy - Get Inside The Head Of Today's Generation 2007 AE Institute Session - To purchase 2006 AE Institute Session - Parts 1 2 3 4 5 6 7 8 9 HouseValues Mastermind call - Parts 1 2 Blanche's fireside chat with Jeremy Conaway, HAR - Click here. To contact Blanche, email her at . For more articles by Blanche, click here.