Fannie Mae and Freddie Mac were both established by the government to boost the housing market. Fannie Mae is the Federal National Mortgage Association, or FNMA, and Freddie Mac is the Federal Home Loan Mortgage Corporation, or FHLMC.
These entities don’t only have different origins – they also differ by products and their target markets. For instance, Fannie Mae buys mortgages from large retail banks. Meanwhile, Freddie Mac buys mortgages from smaller thrift banks. What they do have in common, though, is that they both assist banks in closing more loans while keeping interest rates down.
The history of Fannie Mae
Fannie Mae was established as a government agency by congress in 1938 with the signing and passage of the Federal Home Loan Bank Act. Its purpose was to buy Federal Housing Administration (FHA) mortgages and keep them on the books while helping average Americans make their homeownership dreams a reality.
Fannie Mae became a company in 1968 in another move by Congress. This meant tax dollars would no longer be used to fund the entity – but that Fannie Mae would be allowed to sell stock to the public. Although this brought on stakeholders, the U.S. government continued to guarantee its loans.
The history of Freddie Mac
Freddie Mac was established in 1970 by congress as another government agency to buy mortgages. However, as opposed to Fannie Mae, Freddie Mac wasn’t limited to buying only FHA loans. While Fannie Mae kept its mortgages, Freddie Mac could also sell its mortgages to other organizations and entities in the secondary market.
What Fannie Mae and Freddie Mac have in common
Both Fannie Mae and Freddie Mac have helped make homeownership more affordable for Americans. By functioning as governmental agencies, they also had to be profitable and make mortgage resales possible.
Today, Fannie Mae and Freddie Mac are supported by the Federal Housing Finance Agency. Their profits go straight to the U.S. Treasury.
Fannie Mae vs. Freddie Mac
Fannie Mae’s HomeReady™ vs. Freddie Mac’s Home Possible Advantage®
These loan products share some similar advantages, including secondary financing that can provide up to 105% CLTVs. However, there are some differences between the two.
|Program Features||HomeReady||Home Possible Advantage|
|First-time homebuyer||Not required||Not required|
|Income limits||Must not exceed 80% AMI for location of subject property||Must not exceed 80% AMI for location of subject property|
|Borrower contribution||- Not required on 1 units
- 3% required on 2-4 units
|When the LTV is >80% but less than or equal to 95%, the contribution is 3% for 2-4 units|
|Reserves||Determined by DU||Determined by LP|
|Submissions||DU only||LP and Manually Underwritten|
|Minimum MI coverage||6-25% depending on LTV and term||6-25% depending on LTV|
|Occupancy||All borrowers must occupy unless 95% LTV or lower||Non-occupying borrowers allowed|
|Rental income||Allowed on 1-unit properties||Allowed on 1-unit properties|
|CLTV||- 95% if non-Community Second®
- 105% if Community Second
|- 95% if non-Affordable Second®
- 105% if Affordable Second
|Loan programs||Fixed-term to 30 years||Fixed-term to 30 years|
|UW submission||DU only||LP only|
|Homebuyer education requirements/providers||Required for at least one borrower.
Provided by Framework Homeownership, LLC.
|Required for at least one borrower when all are FTHBs. Free online counseling is available through MGIC or Freddie Mac.|
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