Buying a home and getting financed is more straightforward than what happens after you close on your loan. Investors buy and sell loans in the secondary mortgage marketplace and profit from keeping the primary mortgage market liquid. Whether Fannie Mae or Freddie Mac purchases your loan depends on a number of factors, including the age and amount of the loan, and your credit profile.
What Happens To Your Loan After Closing
The originator of your loan has a limited amount of resources to finance mortgages with at any given time. Whether you close with a credit union or local bank, there's a good chance they'll sell your loan in the future without any input from you. This allows your loan originator to free up capital to fund additional loans. Fannie Mae and Freddie Mac purchase many of these loans and sell them to investors in a secondary mortgage marketplace. Your lender may continue to service the loan by processing your mortgage payment each month and distributing escrow payments, but the loan may actually be owned by a third-party investor, or by Fannie Mae or Freddie Mac.
Fannie Mae and Freddie Mac Background
Fannie Mae's history began as part of President Roosevelt's New Deal initiative. Privatized in 1968, Fannie Mae began buying loans for the secondary mortgage marketplace in 1970. Chartered by Congress in 1970, Freddie Mac began working with Fannie Mae to keep the residential mortgage market liquid and able to fund new mortgages. Today Fannie Mae and Freddie Mac are publicly trade companies and the largest source of mortgage money in the U.S. Both Fannie Mae nor Freddie Mac are government sponsored enterprises, and neither service loans directly.
What Type Of Mortgages Do Fannie Mae and Freddie Mac Buy
In general, Fannie Mae and Freddie Mac purchase conforming or conventional loans not backed by the government, such as FHA or VA loans. Many of the loans they purchase are no more than two years old. As a borrower, you can't control whether Fannie Mae or Freddie Mac purchases your loan. In addition to reviewing a borrower's credit scores and debt-to-income ratio in their evaluation processes, Fannie Mae and Freddie Mac use underwriting guidelines written specifically for government sponsored enterprises. They require private mortgage insurance on loans with less than 20 percent equity, and limit the loan amount based on yearly housing market data.
Finding Out Who Owns Your Loan
Finding out whether Fannie Mae or Freddie Mac owns your loan is a straightforward process and necessary if you're considering refinancing or modifying your loan through a program such as Making Home Affordable. In most cases, you can call your loan servicer directly and ask who owns your loan. Alternatively, visit Fannie Mae's Know Your Options site and enter information about the loan and associated property, or use Freddie Mac's Loan Lookup Tool on its website to see if either owns your loan.
Monica Dillon has more than 10 years experience in real estate sales, marketing, investing and appraising. She specializes in energy efficiency building practices and renewable energy. Dillon has been syndicated by the National Newspaper Publisher's Association. Her work has also appeared in the "Journal Of Progressive Human Services."