Defining Fannie Mae and Freddie Mac is not a matter of “who”, but a matter of “what”. Fannie Mae is a nickname for the Federal National Mortgage Association (FNMA). Freddie Mac is a nickname for the Federal Home Loan Mortgage Corporation (FHLMC). Both the FNMA and the FHLMC are home mortgage companies that were created by U.S. Congress. They do not originate or service mortgages, instead they buy and guarantee mortgages from the secondary mortgage market. The secondary mortgage market is where home loans and mortgage servicing rights are bought and sold between lenders and investors. This is great for homeowners because the secondary mortgage market creates competition in the mortgage industry and is responsible for encouraging lower interest rates.
Fannie Mae buys mortgages from major retail and commercial banks, while Freddie Mac purchases its mortgages from smaller banks (aka"thrift" banks) that focus on providing banking services to communities. Both of these entities help maintain stability in the secondary mortgage market for residential mortgages, and offer support by making more money available for residential mortgage financing. The federal government regulates both Fannie Mae and Freddie Mac. Both companies are exempt from state and local taxes. It's important to note that, though Fannie Mae and Freddie Mac both follow Federal Housing Act (FHA) they are separate from the FHA.
The big takeaway is that Fannie and Freddie help to ensure that individuals and families that buy homes and investors that purchase those mortgages have a stable and continuous supply of mortgage money.
COVID19 and Your Fannie Mae or Freddie Mac Mortgage
So, it sounds like you don't really have to worry about paying your mortgage because these government programs will bail you out, right? Wrong.
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Although Fannie and Freddie have relaxed some of their rules, your home can still be foreclosed on if you have a Fannie Mae or Freddie Mac mortgage. The question is not if, but when. The two entities have suspended foreclosures and evictions, and continue to do so based on COVID-19 updates. Typically, delinquent mortgages and loans in forbearance are ineligible for purchase by the two government-sponsored mortgage enterprises. However, in response to the pandemic this rule has been changed and Fannie and Freddie were allowed to purchase these mortgages and loans with closing dates on or after Feb. 1, 2020 and on or before May 31, 2020, and settlement dates on or after May 1, 2020.
Freddie Mac has responded to the pandemic by implementing a COVID-19 Payment Deferral solution. This procedure returns a homeowner’s monthly mortgage payment to its pre-COVID amount by adding up to 12 months of missed payments, including escrow advances, to the end of the mortgage term without accruing any additional interest or late fees. The COVID-19 Payment Deferral solution is effective July 1, 2020, at which time Servicers must begin evaluating homeowners with resolved COVID-19 related hardships for eligibility.
Fannie Mae has responded to the pandemic by offering a reduction or suspension of your mortgage payments for up to 12 months, offered in increments of up to six months. Fannie Mae will not be charging any late fees and will be offering repayment options or loan modifications to help set you up with affordable payments.
Even though your loan may be eligible for Coronavirus mortgage relief, your servicer may make mistakes. Please reach out below with any questions or concerns about your options.