One thing that borrowers tend to ask about is the difference between Fannie Mae and Freddie Mac, as well as how they are connected to FHA loans. As explained here, FHA loans are loans that are backed (insured, essentially) by the federal government via the Federal Housing Administration. As for Fannie Mae and Freddie Mac, here are the basic details of each entity and the main difference between the two.
What is Fannie Mae?
Fannie Mae is the colloquial name for the Federal National Mortgage Association (FNMA): a congressionally authorized, government-sponsored enterprise (GSE) regulated by the Department of Housing and Urban Development (HUD). It was created in 1938 as a way to make mortgages more affordable for families during the Great Depression. When Fannie Mae was privatized in 1968, it stopped guaranteeing these mortgages. Now the FHA guarantees them instead, which means that borrowers may have a loan owned by Fannie Mae but backed by FHA.
What is Freddie Mac?
As for Freddie Mac (full name: Federal Home Loan Mortgage Corporation or FHLMC), it is also a GSE regulated by HUD. Like Fannie Mae, Freddie Mac also buys and holds residential mortgages from lenders so that their capital will be freed up to continue lending, and it also purchases loans that are backed by the FHA. Together, Fannie and Freddie hold roughly 50% of the nation’s residential mortgage loans.
What’s the Difference?
So, wherein lies the difference between the two? Essentially, it’s the respective times and reasons they were created. While Fannie Mae was formed to help struggling Americans during the Depression, Freddie Mac was introduced in 1970 to help improve the secondary mortgage market – more or less, to add competition to the market.
Like Fannie Mae, Freddie Mac is a privately owned enterprise that benefits from government (FHA) backing. That’s why borrowers can have a loan owned by Freddie Mac but backed by the FHA. And after the mortgage collapse of 2008, both entities were placed under the conservatorship of the Federal Housing Finance Agency (FHFA). As you can see, there are major similarities.
What else do you need to know?
Because Fannie and Freddie work exclusively with lenders and do not do business with consumers directly, many FHA borrowers are unaware which of the two entities owns their home loan (or whether either of them does at all). That begs the question: Do you need to know? You don’t, because it doesn’t necessarily matter. Whether your loan is owned by Fannie Mae or Freddie Mac, you, the consumer, are not dealing with either of them. Instead, you are only dealing with your loan servicer. The original terms of your loan are still in effect, no matter who the loan is sold to later. For example, if you originate your FHA loan at Wholesale Capital Corporation and we sell it later – whether it’s to a bank, an investor or Fannie Mae – we underwrite it to the rules of that entity so that the terms become universally applicable.
Here’s something else to consider: Right now, Fannie Mae and Freddie Mac are buying very few FHA loans. Ginnie Mae, or the Government National Mortgage Association, is currently buying more FHA loans than the other two enterprises. More on that later; for now, rest assured that you simply need to abide by the original terms of your loan, no matter who currently owns it. For more information on FHA loans in California or Arizona, contact Wholesale Capital Corporation at (855) 640-2020 and ask to speak with a loan officer. We will be glad to help you.
Wholesale Capital Corporation is not affiliated with or acting on behalf of or at the direction of the Federal Housing Authority (FHA) or any government agency or government-sponsored entity.
WCC is licensed by the California Bureau of Real Estate, Broker License #01147747 and CA Finance Lender’s License #603K610. Also licensed in Arizona by the Arizona Department of Financial Institutions, MB #0926199. Equal housing lender.