What are Fannie Mae and Freddie Mac?

Fannie Mae stands for the Federal National Mortgage association and was established in 1968. Freddie Mac stands for The Federal Home Loan and Mortgage Corporation. Both are Government Sponsored Enterprises(Gse's) and allow lenders to remain liquid by acting as a pass-through for mortgage loans.

Fannie Mae utilizes the automated underwriting system known as Desktop Underwriter, or DU to score loans that they will purchase. Freddie Mac uses Loan Prospector, or LP to score their loans. Be sure to ask your mortgage professional if they use and are familiar with both underwriting engines.

Fannie Mae and Freddie Mac are what is considered the secondary market. They buy loans from the banks on the primary market (banks that are originating mortgage loans) to free up money for the banks on the primary market so that they can continue to originate new mortgages to more clients. This is one way that Freddie Mac and Fannie Mae are able to increase levels of home-ownership for Americans.

The end result result of Fannie Mae and Freddie Mac is that there is a standardization of prime mortgage loans both in terms of rate and documentation requirements. This means better rates for the consumer if you qualify for Fannie Mae or Freddie Mac loans.

Another benefit of Fannie Mae and Freddie Mac is their use of automated underwriting systems. Many times, a loan can be approved by a seasoned mortgage professional through DU or LP that would not be approved through manual underwriting.

Consumers who "just miss" qualifying for FNMA and FHLMC loans may be able to get financing under their expanded approval guidelines. Be sure to ask your mortgage professional to review your options.

Fannie Mae's product "My Community" is an excellent loan source for first time homebuyers.

» DISCLAIMER: The information contained in this article on 'What are Fannie Mae and Freddie Mac?' is a collection of contributions by licensed mortgage professionals and is not the opinion of Broker Outpost LLC. Always consult a licensed professional before applying for a mortgage.