Freddie Mac vs Fannie Mae
In the process of homeownership, a person can encounter the term “mortgage.” “Mortgage” is a French term that means “dead pledge.” These are loans that are secured by a property. Payment for the installments is made over a set period of time. A mortgage secures the commitment of the one who wants to borrow the money that will be repaid. For some people, a mortgage is the largest and one of the most serious financial obligations that an individual can make. Basic components of mortgage lending are: the property, mortgage, borrower, lender, interest, and foreclosure.
Several different types of mortgages exist, and all of these are subject to legal requirements and local regulation. These types are the adjustable-rate mortgages and the fixed-rate mortgages. The most common mortgage used by first-time homebuyers is the fixed-rate mortgage. Because of their stability, their payments are fixed. And in case of an inflation of interest rates, the interest of the mortgage is not affected, but the property taxes and insurance costs can still change. In an adjustable-rate mortgage, the initial interest rate is lower as well as the monthly payment making it a popular choice. The interest rate in that type of mortgage is fixed initially, but it will adjust periodically depending on the market index.
So who holds these systems? The answer is the government-sponsored enterprises in charge of financial services, also known as the GSE. These GSEs are corporations that are created by the United States Congress. They handle and help to improve the flow of credit in targeted sectors and to make the segments on the capital market to become more efficient and effective at the same time. GSEs are charged with improving the availability and lower the cost of credits to the borrowing sectors. Examples of these GSEs are Fannie Mae and Freddie Mac; both of them handle home finance.
Fannie Mae, which is also known as the Federal National Mortgage Association, is a GSE founded in 1938 from the amendments in the National Housing Act. The corporation makes money by borrowing at lower rates, and when the rate is higher, they lend money. Fannie Mae buys the mortgages. It then packages and sells the securitized mortgages on the market.
The Federal Home Loan Mortgage Corporation, or Freddie Mac for short, was created in 1970 with the goal of expanding the secondary market for mortgages in the United States. Their business is like the other GSEs; they buy mortgages, pool and package them, then sell them in the open market just like Fannie Mae.
Their differences come from their rules. Fannie Mae allows its borrowers to have home loan guarantees up to ten multiple properties, while Freddie Mac only allows up to four units. They also differ on the rules regarding the amount of money in the borrower’s hand when they request the financing on a non-owner occupied property. Fannie Mae allows two months’ reserves in hand while Freddie Mac requires six months’ reserves. Another difference comes in the down payment options. Fannie Mae allows a minimum of a three per cent down payment while borrowers from Freddie Mac must have a minimum of a five per cent down payment.
Summary:
1.A mortgage secures the commitment of the one who wants to borrow the money that will be repaid. For some people, a mortgage is the largest and one of the most serious financial obligations that an individual can make. Basic components of mortgage lending are the property, mortgage, borrower, lender, interest, and foreclosure. There are also different types of mortgages that exist.
2.Government-sponsored enterprises are created by the United States Congress as financial services corporations. One of the segments is the residential mortgage segment. An example of these GSEs that are tasked with handling housing is 3.Fannie Mae and Freddie Mac.
4.Fannie Mae and Freddie Mac are corporations that make money by borrowing at lower rates, and when the rate is higher, they lend money. They buy the mortgages then package and sell the securitized mortgages on the market.
5.Differences between Fannie Mae and Freddie Mac come in rules regarding home loan guarantees and the minimum amount of money that the borrower must have in hand. They also differ in down payment options.