Just who are Fannie and Freddie and why are they Royalty in the mortgage business?

The Federal National Mortgage Association or Fannie Mae was created in 1938 under FDR. He wanted to expand the flow of mortgage money by creating a secondary market.

This would allow more money to back more loans to help the average homeowner as well as new homebuyers. In 1968 Fannie Mae was changed into a private corporation and is traded on the NYSE and the S&P 500. Once the Fannie Mae was converter, they ceased to be guaranteed by the government. Although even today, it is a misconception that Fannie Mae is thought to be government backed, they're not!

Taking its place, also in 1968, is the Government National Mortgage Association or Ginnie Mae. This is the only Mortgage Backed Securities guaranteed by the United States Government. These are mortgage loans issued by FHA, VA, RHS and the Office of Public and Indian Housing.

Two years later, in 1970 Federal Home Loan Mortgage Corporation or Freddie Mac was born. Freddie Mac is a stockholder-owned corporation chartered by the U.S. Congress to give competition to Fannie Mae and keep her from having a monopoly AND to increase the supply of funds that mortgage lenders can make available to homebuyers and multifamily investors. In Oklahoma alone, Freddie Mac has invested $20.7 billion in the last decade to over 230,000 Oklahoma families.

Freddie Mac also conducts its business primarily by buying mortgages from lenders, packaging the mortgages into securities and selling the securities – guaranteed by Freddie Mac, to investors. In turn, mortgage lenders use the proceeds from selling loans to Freddie Mac to fund new mortgages, constantly replenishing the pool of funds available for lending to homebuyers.

Both Freddie and Fannie have certain guidelines that must be adhered to or the loans can not be bought by them.

Be sure you understand the Loan!

You must understand there is no such thing as a NO COST LOAN or NO FEE LOAN. If you hear this or see it on a commercial at 3AM Be Wary!

There are 4 things I would say you need to ask and be sure you understand, about the loan itself.

1. What are the points on the loan?

2. What are the Costs of the loan?

3. What is the interest rate of the loan?

4. Will the Interest Rate change during the course of the loan? And if so...

    a. By How Much?

    b. Is there a Limit to How much it can change?

    c. How often will it change?

    d. When will it change?

Your monthly premium will be based on the Annual Percentage Rate. This is determined by how good your credit is. Understand a lender has nothing to base your ability to pay him back on other then how you have previously paid others. Gone are the days when Mr. Smith could walk into his bank and just by the banker’s judgment of character, decide if Mr. Smith will be bringing home the bacon that day.

We look at obvious criteria while deciding, based on your credit history as well as your job history, how long you have lived in your home, DMV records etc.

We are generally more liberal then a bank would be. However, all of these documents tell us how reliable you will be in paying your payments on time and in full. These items will determine along with the Feds how much he will charge you for borrowing the money or what the APR will be.