We are direct lenders with no overlays on government and conventional loans and offer alternative financing programs. We also offer escrow advances on refinance mortgages.
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- Fannie Mae vs. Freddie Mac.
Gustan Cho is a senior mortgage expert and National Managing Director, providing direct-to-consumer advice at Loan Cabin. We are a mortgage brokers licensed in multiple states. Gustan Cho Associates: The role of Fannie Mae and Freddie Mac is to purchase mortgage loans originated by the following: Banks Credit unions Mortgage bankers Credit unions Mortgage bankers need to sell the loans they originated to relieve their inventory and lines of credit in order to generate more mortgage loans.
Fannie Mae was formed and created under the watch of Franklin D. Roosevelt back in Purpose was to insure that mortgage funding was sufficient and available at all times Especially during periods of the depression and tougher economic times Fannie Mae became a public enterprise back in and was publicly traded Freddie Mac was formed back in The reason Freddie Mac was created was to create competition to Fannie Mae The purpose was so that Fannie Mae would not have a monopoly on mortgage loans Mortgage loans that both Fannie Mae and Freddie Mac purchased were all bundled up to form mortgage backed securities, also known as MBS Real Estate Meltdown And Fannie Mae And Freddie Mac Both Fannie Mae and Freddie Mac came into financial crisis due to the real estate and credit market collapse.
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Conventional Loans. Freddie Mac reminded mortgagees that its disaster relief guidelines authorize mortgage companies who have homeowners in major disaster areas to suspend mortgage payments for up to twelve months, waive assessments of penalties or late fees against those homeowners with disaster-damaged homes, and suspend reporting forbearance or delinquencies caused by the disaster to the national credit bureaus.
It stated that FHA-insured mortgages secured by properties within the disaster area are subject to a ninety day moratorium on foreclosures following the disaster. All mortgage servicers that are currently servicing mortgages secured by properties within the disaster area should review the disaster relief guidelines of these entities in preparation for assisting homeowners with both temporary and long-term recovery efforts. FHFA stated that there are no plans to liquidate the company. The authority of the U.
Treasury to advance funds for the purpose of stabilizing Fannie Mae, or Freddie Mac is limited only by the amount of debt that the entire federal government is permitted by law to commit to. Since then the stocks have continued to trade on the Over-the-Counter Bulletin Board. Fannie Mae makes money partly by borrowing at low rates, and then reinvesting its borrowings into whole mortgage loans and mortgage backed securities.
It borrows in the debt markets by selling bonds, and provides liquidity to loan originators by purchasing whole loans. It purchases whole loans and then securitizes them for the investment market by creating MBS that are either retained or sold. It must legally ignore adverse market conditions which appear to be unprofitable. If there are loans available for purchase that meet its predetermined underwriting standards, it must purchase them if no other buyers are available.
Because of the size, scale, and scope of the United States single-family residential and commercial residential markets, market participants viewed Fannie Mae corporate debt as having a very high probability of being repaid. Fannie Mae is able to borrow very inexpensively in the debt markets as a consequence of market perception. There usually exists a large difference between the rate at which it can borrow and the rate at which it can 'lend'.
This was called "The big, fat gap" by Alan Greenspan. Fannie Mae also earns a significant portion of its income from guaranty fees it receives as compensation for assuming the credit risk on mortgage loans underlying its single-family Fannie Mae MBS and on the single-family mortgage loans held in its retained portfolio. Investors, or purchasers of Fannie Mae MBSs, are willing to let Fannie Mae keep this fee in exchange for assuming the credit risk; that is, Fannie Mae's guarantee that the scheduled principal and interest on the underlying loan will be paid even if the borrower defaults.
Fannie Mae is a purchaser of mortgages loans and the mortgages that secure them, which it packages into MBS. Fannie Mae buys loans from approved mortgage sellers and securitizes them; it then sells the resultant mortgage-backed security to investors in the secondary mortgage market , along with a guarantee that the stated principal and interest payments will be timely passed through to the investor.
This gives the United States housing and credit markets flexibility and liquidity. In order for Fannie Mae to provide its guarantee to mortgage-backed securities it issues, it sets the guidelines for the loans that it will accept for purchase, called "conforming" loans. Fannie Mae produced an automated underwriting system AUS tool called Desktop Underwriter DU which lenders can use to automatically determine if a loan is conforming; Fannie Mae followed this program up in with Custom DU, which allows lenders to set custom underwriting rules to handle nonconforming loans as well.
Fannie Mae and Freddie Mac have a limit on the maximum sized loan they will guarantee. This is known as the "conforming loan limit". OFHEO annually sets the limit of the size of a conforming loan based on the October to October changes in mean home price, above which a mortgage is considered a non-conforming jumbo loan. The conforming loan limit is 50 percent higher in Alaska and Hawaii.
Fannie Mae And Freddie Mac Versus HUD Guidelines
The GSEs only buy loans that are conforming to repackage into the secondary market, lowering the demand for non-conforming loans. Originally, Fannie had an 'explicit guarantee' from the government; if it got in trouble, the government promised to bail it out. This changed in Ginnie Mae was split off from Fannie. Ginnie retained the explicit guarantee.
Fannie, however, became a private corporation, chartered by Congress and with a direct line of credit to the US Treasury. The charter also limited their business activity to the mortgage market. In this regard, although they were a private company, they could not operate like a regular private company. Fannie Mae received no direct government funding or backing; Fannie Mae securities carried no actual explicit government guarantee of being repaid. This was clearly stated in the law that authorizes GSEs, on the securities themselves, and in many public communications issued by Fannie Mae.
The certificates did not legally constitute a debt or obligation of the United States or any of its agencies or instrumentalities other than Fannie Mae. During the sub-prime era, every Fannie Mae prospectus read in bold, all-caps letters: However, the implied guarantee, as well as various special treatments given to Fannie by the government, greatly enhanced its success. For example, the implied guarantee allowed Fannie Mae and Freddie Mac to save billions in borrowing costs, as their credit rating was very good.
Mortgages: FHA, Fannie Mae, Freddie Mac..... who's confused?
In testimony before the House and Senate Banking Committee in , Alan Greenspan expressed the belief that Fannie Mae's weak financial position was the result of markets believing that the U. Government would never allow Fannie Mae or Freddie Mac to fail. Fannie Mae and Freddie Mac were allowed to hold less capital than normal financial institutions: The additional leverage allows for greater returns in good times, but put the companies at greater risk in bad times, such as during the subprime mortgage crisis.
FNMA is not exempt from state and local taxes. That is, a worst-case default would drop a fund not more than five percent. However, these rules do not apply to Fannie and Freddie. It would not be unusual to find a fund that had the vast majority of its assets in Fannie and Freddie debt. In , the Congressional Budget Office wrote "there have been no federal appropriations for cash payments or guarantee subsidies.
But in the place of federal funds the government provides considerable unpriced benefits to the enterprises Government-sponsored enterprises are costly to the government and taxpayers FNMA is a financial corporation which uses derivatives to "hedge" its cash flow. Derivative products it uses include interest rate swaps and options to enter interest rate swaps "pay-fixed swaps", "receive-fixed swaps", " basis swaps ", " interest rate caps and swaptions ", " forward starting swaps ".
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Duration gap is a financial and accounting term for the difference between the duration of assets and liabilities, and is typically used by banks, pension funds, or other financial institutions to measure their risk due to changes in the interest rate. From September to March, the gap has run between plus to minus one month.
In late , Fannie Mae was under investigation for its accounting practices. The Office of Federal Housing Enterprise Oversight released a report  on September 20, , alleging widespread accounting errors. Concerns with business and accounting practices at Fannie Mae predate the scandal itself. On December 18, , U. Timothy Howard; and the former controller Leanne G. The three were accused of manipulating Fannie Mae earnings to maximize their bonuses.
After 8 years of litigation, in , a summary judgment was issued clearing the trio, indicating the government had insufficient evidence that would enable any jury to find the defendants guilty. Johnson and Franklin Raines , had received loans below market rate from Countrywide Financial. Fannie Mae was the biggest buyer of Countrywide's mortgages. Fannie Mae and Freddie Mac have given contributions to lawmakers currently sitting on committees that primarily regulate their industry: Securities and Exchange Commission with securities fraud.
He then resigned from CoreLogic. Piszel was not among the executives charged in December Kellermann committed suicide during his tenure at Freddie. In , the agency had a number of other big banks in the crosshairs as well. JPMorgan JPM was one of 18 financial institutions the FHFA sued back in , accusing them of selling Fannie and Freddie securities that "had different and more risky characteristics than the descriptions contained in the marketing and sales materials".
The firms have been controlled by the FHFA since their rescue. The question of whether any individual bankers will be held to account is another matter. Thus far, criminal cases related to the packaging and sale of mortgage-backed securities have been conspicuously absent. The proposed JPMorgan settlement covers only civil charges, and would not settle the question of whether any individual executives engaged in wrongdoing.
There is an ongoing federal criminal probe based in Sacramento, Calif. JPMorgan originally sought to be protected from any criminal charges as part of this deal, but that request was rejected by the government. Another lawsuit filed earlier in Orange County Superior Court , this one for wrongful termination , has been filed against Fannie Mae by an employee who claims she was fired when she tried to alert management to kickbacks. The employee claims that she started voicing her suspicions in The bill, if it were passed, would modify the budgetary treatment of federal credit programs, such as Fannie Mae and Freddie Mac.
The goal of the bill is to improve the accuracy of how some programs are accounted for in the federal budget. District Court judge said Nomura Holdings Inc.
The order brought to conclusion a rare trial addressing alleged mortgage-related infractions committed during the housing boom. Over the past few years, more than a dozen firms chose to settle similar allegations brought by the FHFA rather than face a court battle. During the boom, Fannie and Freddie invested billions of dollars in mortgage-backed securities issued by such companies as Nomura. During the nonjury trial, lawyers for the FHFA said that Nomura and RBS inflated values of homes behind some mortgages and sometimes said a home was owner-occupied when it was not.