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Who are Freddie Mac and Fannie Mae?
Always Save the Day for Investments So many individuals and families in America need assistance if they want to purchase a new home. Mortgages are a way for them to finance their dream homes but most of the time homes are not really very affordable. There is a need for lower-priced houses so more people can have their dreams fulfilled. There are two ways the Federal governments helps the people. Those looking to buy their new homes can run to Freddie Mac and Fannie Mae for help. The Freddie Mac and Fannie Mae tandem Freddie Mac is the acronym for Federal Home Loan Mortgage Corporation or FHLMC. This government-assisted company has been created in 1970 to provide loans and loan guarantees and expand the secondary market for mortgages in the United States. The goals are to create ways for the public to afford homes and to expand the secondary market so that there will be more funds available for more people. Freddie Mac has been the name officially used since it will be easier to remember and recognize. To make more money available, Freddie Mac charges fees on loans that is has bought and converted to bonds. Investors of Freddie Mac pay the charges and let the company take care of them by assuming all credit risks. Freddie Mac assures its stockholders that their investments are intact whether the mortgage borrower pays or not. Fannie Mae came first before Freddie Mac. Similarly, the name is an acronym for Federal National Mortgage Association, a corporation tasked to make loans and loan guarantees. Fannie Mae is the official name of the financial institution. Founded in 1938 under President Franklin Roosevelt, Fannie Mae was an instrument to liquidate the mortgage market. This organization has monopolized the country’s secondary mortgage market until Freddie Mac came along in 1968. Fannie Mae was converted into a private corporation that same year and the competition made a good impact on the market. Traditionally, a financial company like a bank will lend money to an individual or business from the funds that are deposited in it. Interest charges and monthly payments are expected on the loan for the entire term of the mortgage. This method has posed two major problems. First, all borrowers prefer the fixed-rate mortgages to the variable for obvious economical and practical reasons. The bank is prone to varying rates and it is alone in shouldering the interests that it has to pay its depositors. That couldn’t be good for the bank. Second, there might come a time when the bank will lack funding to lend its customers. Fannie Mae and Freddie Mac addressed these problems through their methods of investing bonds on mortgages they sell. For instance, a bank sells $100,000 bonds at 7% interest rate for a mortgage loan of $100,000 that it charges its customers at the same rate. Through this method, the money is virtually intact in the bank as the bond owners in essence, lend the funds to the homeowners. The homeowner doesn’t feel this since he only gets the bill statement from the bank. Freddie Mac and Fannie Mae guarantee the bond owners of their investments regardless if the borrowers pay their mortgage loans or not. David Jackson has been involved in providing essential information and powerful tools that will help individuals in their requests for your Real Estate needs. This can be found at http://carpediemarticles.com/realestate/
Myrdhinn Private Vault http://carpediemarticles.com/allproducts.php Copyrights@ Carpediem. This article may be printed in any form , on the guarantee that the article stay the same without any omittances , deletions , alterations or changes throughout this article. This copyright is to stay with this article. - |
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