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Jun 21, 2021

How can you tell Fannie Mae (FNMA) and Freddie Mac (FHLMC) apart?

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

  • Limited condo project review
    • Fannie Mae requires 80% loan-to-value (LTV) ratio with desktop underwriting (DU) approval/eligibility
    • Freddie Mac will accept 90% LTV for a primary residence and 75% for a second home
  • Borrower’s minimum investment
    • Fannie Mae doesn’t require 5% of the borrower’s own funds for LTVs greater than 80%
    • Freddie Mac doesn’t require 5% of the borrower’s own funds for LTVs greater than 80%
  • Borrower limit
    • Fannie Mae has a limit of 4 borrowers
    • Freddie Mac allows up to 5 borrowers
  • Paying off revolving debts
    • Fannie Mae requires all revolving debts to be paid off to be closed
    • Freddie Mac does not require revolving debts to be paid off to be closed
  • Non-occupant borrowers
    • Fannie Mae doesn’t consider the income of a non-occupant co-borrower when qualifying the debt-to-income ratio (DTI)
    • Freddie Mac accepts the non-occupant co-borrower’s income in qualifying the DTI (blended ratios are acceptable)
  • Foreclosures, bankruptcies, and short sales
    • Fannie Mae allows extenuating circumstances with DU approval/eligible
    • Freddie Mac requires Loan Prospector (LP) acceptance, standard seasoning requirements for foreclosures, bankruptcies, short sales, etc.; extenuating circumstances require manual underwriting, which is not allowed.
  • Number of financed properties
    • Fannie Mae allows 5 to 10 financed properties
    • Freddie Mac limits investor or second home transactions to no more than 4 financed properties

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
Boarder income Allowed Allowed
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.


Want to learn more about the products and tools offered by Fannie Mae and Freddie Mac? Let’s talk today!

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