East Valley Connection

Fannie Mae (FNMA) is an acronym for Federal National Mortgage Association.  It is a government sponsored enterprise (GSE) of the U.S. Government.  It was created in 1938 as part of President Roosevelt’s “New Deal” to provide money and liquidity to the mortgage market which collapsed earlier in the decade during the Great Depression.   It is a shareholder-owned corporation authorized to make loans and loan guarantees. 

Freddie Mac (FHLMC) is another GSE, founded in 1970, has the exact same functions and operates the exact same way as Fannie.

The main mission of Fannie and Freddie is to provide liquidity into the mortgage markets by purchasing loans made by local lenders and repackaging them into bond-market security pools that are sold to investors with the U.S. Government’s stamp of approval.  A simplified example is, I may get you a home loan with Wells Fargo at 6.5%——who then sells your loan with a bunch of others (called pools) to Fannie/Freddie for 6.0%, who sells them on Wall Street (called mortgage backed securities).  Wells Fargo collects your monthly payment (called servicing) for a fee; however, they’ve already sold your loan on Wall Street.  This loan is “guaranteed” by Fannie or Freddie, which is what makes our interest rates so low.  Without this flow of money (liquidity), our home rates would be, who knows, 2% to 4% higher, is a guess.

HISTORY

In 1968, to remove the activity of Fannie from the annual balance sheet of the federal budget, it was converted into a private corporation.  Fannie ceased to be the guarantor of government-issued mortgages, and that responsibility was transferred to Ginnie Mae (Government National Mortgage Association).  This entity falls under the guise of HUD and provides all of our FHA and VA loans—amongst others, such as Indian Housing and Rural loan programs.  In 1970, Freddie was founded to expand the secondary mortgage market and to combat Fannie’s monopoly.  When you hear the term “Conventional” loans, that means Fannie & Freddie, which are allowed to guarantee loans up to $417,000.  Anytime you hear “Jumbo” loans, those are loans greater than $417K, money comes from a smaller pool of non-Fannie/Freddie investors, thus Jumbo loans higher rates.

TODAY 

Fannie and Freddie own/guarantee over half of the $12 Trillion mortgage market.  There is a wide belief that these securities are backed by some sort of implied Federal Guarantee.  These days, Congress, The Fed, The SEC are all talking about how to keep Fannie and Freddie afloat if the foreclosure rate threatens their liquidity.  The big fear for our economy is if these GSEs will eventually be supported by U.S. Treasuries, then eventually, us tax payers.  Stay posted!!

Well, the big development, coming out just today, was that Fannie Mae has chosen to relax it’s standards to allow conventional financing up to 97% even in distressed sales market.  The affect of this new change is that for the past few months, most borrowers had to have a minimum of 5% and many lenders even insisted on 10% down.  Now that Fannie Mae has said they will once again purchase mortgages with conventional financing and only 3% down, borrowers are not forced to get an FHA loan if they are looking for minimum down payment.  That allows them to avoid the 1.5% FHA “funding fee” that must be charged on FHA loans.  Obviously, these borrowers will still have monthly mortgage insurance but they are allowed higher purchase prices than FHA allows.   All in all, a good Loan Consultant can still help to guide perspective borrowers into the right choice for them.

The other big piece of news today was that Consumer Confidence has dropped to a low not seen since the Carter administration.  This is most likely due to the fact that consumers at large feel that there is still more difficulty coming in the economic markets. 

My summary??  Rates are still really good.  The thing that is stopping most borrowers is that there is now a shortage of ‘niche’ programs that fit borrowers that do not fit conventional guidelines.  While I understand that many programs should not have been so easy, I think there needs to be a balace that can accomodate those that are not conventional but still good credit risks.  Until we begin to see some of those programs coming back, difficulties will continue. 

If I can be of any help to you, please do not hesitate to call/email me!!