Government Support For Fannie Mae And Freddie Mac
In addition to the government conservatorship, which CBO estimates will increase the federal government’s net liabilities by $238 billion, several government agencies have taken steps to increase liquidity within Fannie Mae and Freddie Mac. Among these steps includes:
Qualifying For A Conventional Loan
Fannie Mae and Freddie Mac now have fairly strict criteria for the loans they purchase. The requirements vary according to the loan product and the borrowers qualifications. These are the standard eligiblity requirements for a manually underwritten purchase loan:
- Maximum loan-to-value ratio: 95%
- Maximum debt-to-income ratio: 36% with a credit score of 620 to 680, depending on down payment amount and cash reserves 45% with a credit score of 660 to 720, depending on down payment amount and cash reserves
- Minimum credit score: 620 for a fixed-rate loan with at least 25% down and a maximum debt-to-income ratio of 36% 660 with at least 25% down and a maximum debt-to-income ratio of 45%
Fannie Mae and Freddy Mac both have 97% LTV loans for borrowers who meet special criteria such as having low or moderate income. However, youll be required to pay private mortgage insurance if you put less than 20% down on any loan.
How Are Fannie And Freddie Doing Today
Much better, but both companies still have a very long way to go. Thanks in part to rising home prices, Fannie Mae in August posted its largest quarterly profit since the crisis began, marking its second consecutive profitable quarter. Meanwhile, Freddie Mac reported a quarterly profit for the fifth time since the crisis began.
The improved finances at both companies led the U.S. Treasury Department in August to rework the terms of the government bailout. Under the previous agreement, Fannie and Freddie drew money from the Treasury Department as needed to bolster its capital reserves. In exchange, the companies issued preferred stock to the government on which they paid a mandatory 10 percent dividend. Under the new rules, Treasury will simply claim all of Fannie and Freddies profits at the end of each quarter and provide capital when necessary in the event of a quarterly loss.
While the worst of the crisis appears to be over, Fannie and Freddie are a long way from repaying their debt. According to Moodys Analytics, it could take the companies 15 years to pay back taxpayers in full. Meanwhile, as the government continues to play a central role in the day-to-day operations of Fannie and Freddie, the continued uncertainty has led many key staff to leave and has caused an underinvestment in necessary infrastructure and systems.
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Freddie Mac And Fannie Mae Not Considered Government Agents Under The Fca
In United States ex rel. Adams v. Aurora Loan Servs., Inc., 2016 WL 697771, F.3d – , the Ninth Circuit found that Fannie Mae and Freddie Mac were not government entities for purposes of the False Claims Act. In so holding, the Ninth Circuit provided further clarity to the distinction between claims under 31 U.S.C. § 3729 and claims under 31 U.S.C. § 3729 .
In Adams, the relator alleged that various lenders and loan servicers violated the FCA by making false certifications to Fannie Mae and Freddie Mac that certain loans were free and clear of liens and charges. The relator pursued its FCA claims under 31 U.S.C. § 3729, contending that Fannie Mae and Freddie Mac should be considered government officers, employees or agents. The relator focused solely on 31 U.S.C. § 3729, arguing that Fannie Mae and Freddie Mac were government agents because: the Ninth Circuit had previously determined that these entities were federal instrumentalities for state/city tax purposes and these entities were subject to the Federal Housing Finance Agency conservatorship. The relatorfor reasons unexplainable to the Ninth Circuitdid not bring claims under 31 U.S.C. § 3729 or otherwise allege that Fannie Mae and Freddie Mac received and used money from the government to advance a government program.
How Do Fannie Mae And Freddie Mac Protect Homebuyers
Without Fannie Mae and Freddie Mac, far less money would be available for mortgage lending. Banks would not lend nearly as much and the mortgages that would exist would probably have higher interest rates. Fewer people would be able to afford to buy homes, so they would be stuck renting.
The enterprises also have programs specifically created to help homeowners. This includes assistance to people buying a home and relief for people impacted by events like the COVID-19 pandemic.
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Definitions Of Agency And Non
Agency MBS are created by one of three agencies. These are Government National Mortgage Association , Federal National Mortgage , and Federal Home Loan Mortgage Corp. . Securities issued by any of these three agencies are referred to as agency MBS.
Ginnie Mae bonds are backed by the full faith and credit of the U.S. government. They are thus free from default risk. Fannie Mae and Freddie Mac were both chartered by the U.S. government. But, they’re now owned by shareholders. They work under a congressional charter. They lack the same backing as Ginnie Mae bonds. But, the risk of default is still fairly low.
Private entities, such as banks, can also issue mortgage-backed securities. In this case, the MBS are referred to as non-agency MBS or private-label securities. These bonds are not guaranteed by the U.S. government or any government-sponsored enterprise. Non-agency MBS are often based on pools of borrowers who couldnt meet agency standards.
Many of these non-agency loans were the Alt-A and subprime loans that fueled the 2008 financial crisis. This, plus the lack of government backing, means that non-agency MBS contains not present in agency MBS. In other words, there is a higher chance of default on these bonds.
General Borrower Identity Criteria
A borrower is any applicant whose credit, income and/or assets are used for qualifying purposes to determine the ability to meet Fannie Maes underwriting and eligibility standards. For Fannie Maes purposes, the term co-borrower is used to describe any borrower other than the first borrower whose name appears on the mortgage note, regardless if that person owns the property jointly with the first borrower .
Lenders must confirm each borrowers identity prior to the extension of credit. Fannie Maes requirements for borrower identity verification are intended to align with lenders existing federal obligations under laws requiring information and document verification, including the Department of Treasury’s Office of Foreign Assets Control regulations and the U.S. Patriot Act.
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What It Means For Individual Investors
Up until 2010, Fannie Mae stock traded on the NYSE. However, in July of that year, Fannie Mae announced its preferred and common stock would trade on the OTC Bulletin Board. While investors can still buy common stock and junior preferred stock, the conservatorship doesn’t allow dividends to be paid.
Who Qualifies For Freddie Mac Loans
Qualifying for HomeOne Freddie Mac 97 percent financingAt least one borrower must be a first-time homebuyer.
The property must be a one-unit primary residence including single-family residences, townhomes, and condos.
You need at least 3 percent for your down payment.
Homebuyer education is required.
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What Does Fannie Mae Do
Despite its integral role within the mortgage industry, Fannie Mae does not provide direct loans to consumers. Its not an originator and was never intended to be one. Instead, Fannies role is to work with large banks and third-party originators to establish a set of guidelines and requirements under which it will purchase and guarantee mortgage loans and provide liquidity to the market. With liquidity flowing and guarantees in place, lenders are more apt and able to provide the funds borrowers need to purchase homes and conduct refinances.
To put it another way, Fannie Mae mortgages provide the financing that underpins most conventional home loans throughout the U.S. By purchasingand therefore guaranteeing the vast majority of home mortgages, Fannie creates stability and security within the housing market while ensuring access to available capital.
All of this makes it easier for millions of people to to acquire a home, especially the many families and individuals who might otherwise be financially challenged when considering a home purchase. In addition, the popular 15-year and 30-year Fannie Mae mortgages provide homebuyers with ample peace of mind, offering steady, predictable mortgage payments over the lifetime of the loan.
What Are Fannie Mae And Freddie Mac
Fannie Mae and Freddie Mac are large companies that guarantee most of the mortgages made in the U.S. Together, they are also known as the government sponsored enterprises . Historically, they were private companies operating with government permission and under government regulation. In late 2008, following the financial crisis, the U.S. government took over operations at both companies. Loan guarantees from Fannie Mae and Freddie Mac reduce risk for lenders who make loans and investors who might purchase them. This makes loans more affordable and contributes to the availability of 30-year fixed-rate loans. Loans that are not eligible for Fannie Mae or Freddie Mac guarantees are typically more expensive. Loans guaranteed by the GSEs are known as conventional loans. To qualify, these loans must meet certain criteria. Some requirements are established by government regulation , while others are set by the companies.
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Government National Mortgage Association
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The Government National Mortgage Association , or Ginnie Mae, is a government-owned corporation of the United States Federal Government within the Department of Housing and Urban Development . It was founded in 1968 and works to expand affordable housing by guaranteeing housing loans thereby lowering financing costs such as interest rates for those loans. It does that through guaranteeing to investors the on-time payment of mortgage-backed securities even if homeowners default on the underlying mortgages and the homes are foreclosed upon.
Ginnie Mae guarantees only securities backed by single-family and multifamily loans insured by government agencies, including the Federal Housing Authority, Department of Veterans Affairs, the Department of Housing and Urban Developments Office of Public and Indian Housing, and the Department of Agricultures Rural Development. Ginnie Mae neither originates nor purchases mortgage loans nor buys, sells or issues securities. The credit risk on the mortgage collateral underlying its mortgage-backed securities primarily resides with other insuring government agencies.
Freddie Mac Mortgage Forbearance
If you have a Freddie Mac-owned mortgage, you may be eligible for help if you have been directly or indirectly impacted by the COVID-19 pandemic. There are currently several mortgage relief options if you can’t make your mortgage payment due to a loss or decline in income, including:
- Up to 12 months of mortgage forbearance
- Waived penalties and late fees
- Halt on all evictions until Sept. 30, 2021
- Loan modification options to lower payments or keep payments the same after the forbearance period.
Forbearance is not forgiveness. Ask your mortgage servicer about your post-forbearance options. Be wary if the option is a balloon payment rather than simply adding the unpaid months to the end of your mortgage.
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Fannie Maes And Freddie Macs Role In Mortgage Markets
Fannie Mae and Freddie Mac purchase mortgages from financial institutions that lend mortgages and then repackage those mortgages into their portfolios or mortgage-backed securities to sell to investors on the secondary mortgage market. By using mortgage-backed securities and guaranteeing on-time principal payments and interest on the mortgages, Fannie Mae and Freddie Mac entice investors to invest in the secondary mortgage market. The attractiveness of the secondary market results in the expansion of housing funds available.
Essentially, the secondary market’s popularity makes it more liquid and helps lower interest rates for the homeowners and other mortgage borrowers. When stress and turmoil arise in the economy, Fannie Mae and Freddie Mac can help stabilize the mortgage market and protect housing.
How To Deliver When A Borrower Is An Inter Vivos Revocable Trust
Deliver the information for the Trusts beneficiary for the primary and secondary/co-borrower . Enter the individual borrower and co-borrower information according to the ULDD requirements for borrowers who are natural persons. Do not populate the Entity Full Name or Legal Entity Type with the value of Living Trust. Special Feature Code 168 Inter Vivos Revocable Trust is required in this instance.
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Ownership And Implicit Guarantee
Some of the GSEs have been privately owned but publicly chartered others, such as the Federal Home Loan Banks, are owned by the corporations that use their services. GSE securities carry no explicit government guarantee of creditworthiness, but lenders grant them favorable interest rates, and the buyers of their securities offer them high prices. This is partly due to an “implicit guarantee” that the government would not allow such important institutions to fail or default on debt. This perception has allowed Fannie Mae and Freddie Mac to save an estimated $2 billion per year in borrowing costs. This implicit guarantee was tested by the subprime mortgage crisis, which caused the U.S. government to bail out and put into conservatorship Fannie Mae and Freddie Mac in September, 2008.
Every GSE prospectus contains the following text, or something virtually identical, in bold letters, and has since before the sub-prime loans were originated: “Neither the certificates nor interest on the certificates are guaranteed by the United States, and they do not constitute a debt or obligation of the United States or any of its agencies of instrumentalities other than Fannie Mae.” Critics of the GSEs have challenged the “implicit guarantee” since before the sub-prime crisis.
Fannie Mae Vs Freddie Mac: Whats The Difference
May 14, 2021
If youre familiar with the mortgage lending process, youve probably heard about Fannie Mae and Freddie Mac. Both Fannie Mae and Freddie Mac are home mortgage companies created by the U.S. Congress. Both of these federally backed institutions provide liquidity, stability and affordability to the mortgage market by offering ready access to funds and guarantees to thousands of banks, savings and loans, and mortgage companies across the country. While there are many similarities between Fannie Mae and Freddie Mac, there are also some significant differences. Well break these two enterprises down even further and give in-depth information about the similarities and differences between Fannie Mae vs Freddie Mac.
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At Least 50% Of The Government
The 2022 multifamily loan purchase caps for Fannie Mae and Freddie Mac will be $78 billion each, for a combined $156 billion to support the multifamily market, according to the Federal Housing Finance Agency .
The caps have increased from $70 billion each for the government-sponsored enterprises in 2021, based on FHFAs projections of the overall growth of the multifamily originations market.
At least 50% of the GSEs multifamily loans are required to be used for mission-driven, affordable housing. FHFA will require that at least 25% of the multifamily business must be affordable to residents at or below 60% of the area median income . This is up from 20% in 2021.
The increases of the multifamily loan purchase caps and higher mission-driven business requirements assure that the enterprises multifamily businesses have a strong and growing commitment to affordable housing finance, particularly for residents and communities that are the most difficult to serve, said FHFA acting director Sandra L. Thompson.
According to Debby Jenkins, executive vice president and head of multifamily at Freddie Mac, FHFAs enhancements to our mission focus and 2022 volume cap increase will allow Freddie Mac to better support the multifamily market in the year to come. These changes allow us to provide more liquidity to the growing market and delve deeper into our mission to address the nationwide housing affordability crisis.
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Differences Between Fannie Mae And Freddie Mac
One of the other key differences between the companies is the original purpose of each. Fannie Mae was created in 1938 to combat the lack of affordable housing post the Great Depression by allowing banks to create more mortgages. While Fannie Mae bought mortgages from lenders, it was more likely to keep the mortgages on their books.
For the first few decades of its establishment, Fannie Mae remained a government-owned entity and monopolized the secondary mortgage market. When Fannie Mae was privatized, Freddie Mac was created in 1970 to compete.
Fannie Mae and Freddie Mac also have different programs for borrowers who can only provide minimal down payments. Fannie Mae offers the HomePath loan, which only allows applicants to qualify as first-time home buyers who earn less than 80% of their areas median income. At the same time, Freddie Mac offers Home Possible for applicants who live in their home and make less than the areas average income.
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Fannie Mae Mortgage Guidelines
Fannie Mae has several loan requirements and basic guidelines that borrowers must meet in order to obtain a loan. They include the following:
- Down payment: When it comes to down payment, homebuyers seeking to purchase a single-family home can expect to put down as little as 5%. This means the maximum LTV ratio is 95%. This will not result in a particularly favorable interest rate, however. The best interest rates require down payments of 40%.
- Debt-to-income ratio : This ratio measures monthly income in proportion to monthly debt, or recurring expenses. This is crucial to procuring a Fannie Mae loan and its recommended that the ratio not exceed 45%, although there are some instances where consumers can still qualify with a DTI of 50%.
- : In order to obtain a loan, Fannie generally needs to see an average FICO score of 620 or higher from the three major credit agenciesTransUnion®, Experian and Equifax®.
- Reserves: Depending on credit score, DTI ratio and LTV, borrowers may need to show cash reserves equal to two months to six months of mortgage payments. This is a prudent bulwark against a borrowers sudden loss of income or other financial hardship they may experience.