What’s Up with Fannie and Freddie
The sub-prime loan situation which has had a negative effect on banks, mortgage companies and other lending institutions has also put a financial strain on two of the nations largest suppliers of mortgage funds. I am speaking specifically about the Federal National Mortgage Association (FNMA), better known as Fannie Mae; and the Federal Home Loan Mortgage Corporation (FHLMC), better known as Freddie Mac. Both are considered “secondary market lenders”. Secondary market lenders are companies and investors that actually provide the funds that you borrow when you take out a loan to mortgage your home. You may go to XYZ Home Loan Company, but they are not actually using their own money. Your loan is packaged with other loans and sold to investors in the secondary market.
Fannie Mae was created in 1938 under President Roosevelt to provide a consistent source of mortgage funds across the country and Freddie Mac came along in 1970. Both are publicly traded companies and get their funds from Wall Street and other investors around the world. Fannie and Freddie are two of the biggest source of funds in the secondary market. Freddie Mac just by itself has provided funds for 1 out of every 6 homebuyers.
Recently both companies have suffered a dropoff in their stock value due to worries among investors and bad publicity regarding their solvency. Since the mortgage lending market has already lost many of its players, we can’t afford to lose Fannie and Freddie as well. It is esential in my opinion that we need strong mortgage lenders like Fannie and Freddie to be there to supply funds to the rest of the country when home buying picks up speed again.
Congress is presently working on a housing bill to help slow down the foreclosures and I believe that legislation will be included in the bill to send aid to both Fannie and Freddie. President Bush has now agreed not to veto the bill.
Filed under: Investing, Mortgage and Lending by Dwight's Real Estate Update