Fannie Mae, Freddie Mac and Ginnie Mae

Mortgage-Backed Securities

• Property Owner: who obtains the loan that is secured by a mortgage on the property
• Loan Originator: either mortgage bankers or mortgage brokers that identifies those who want to borrow money and performs due diligence in terms of verifying the required credit, income, asset, and other ratios (underwriting), assures that the property will appraise for more than the loan amount, etc.  
• Loan Funder: the organization with the money that makes the initial loan for you to purchase the property; usually a bank, but may be an insurance company, pension fund, etc.  A mortgage banker will typically perform both Loan Originator and Loan Funder functions.  A mortgage broker will will typically only perform the Loan Origination functions, for a fee, and may represent several different sources of funds.
• Loan Servicer: typically the Loan Funder does not keep loans for their own account, but will sell the loans to other financial institutions in what is called the Secondary Mortgage Market.  The Loan Servicer is an organization that, for a fee, processes monthly interest and principal payments as well as maintaining records describing the loan and its history of payments.  These loans may be bundled into a mortgage-backed security (described below) and sold as a package to other financial institutions.  Both loans and the right to service the loans may be sold on the secondary market.  

The Federal Government is involved in the housing market through several institutions that are either government owned or government sponsored.  Some of these organizations will guarantee loans issued by banks or other financial institutions to home owners, others will purchase these loans on the secondary market.  For example, Fannie Mae will purchase loans and securitize them, or bundle them into financial instruments called mortgage-backed securities that are then sold to other financial institutions on the secondary mortgage market.  

A mortgage-backed security (MBS) is a security whose cash flows are backed by the principal and interest payments of a set of mortgage loans. Payments are typically made monthly over the lifetime of the underlying loans.  The risk of a MBS can be determined by the probability of the borrower making on-time payments for both principal and interest, the probability that the loan will not be paid-off prematurely, as well as the probability that the originating mortgage broker or mortgage bank loan officer performed adequate due diligence to verify that the borrowers met the financial requirements assumed by the bond rating agency when they established the investment rating for the security.  

Risk will be reduced if principal and interest payments are guaranteed by one of the residential based federal mortgage organizations listed below.  These organizations are loan consolidators that will purchase loans that conform to their borrower requirements, secularities the loans for sale on the financial market, and guarantee principal and interest payments, thereby reducing risk and therefore interest rates.  These loans are said to be "conforming" and the securities are typically called Residential Mortgage Backed Securities.  

Mortgage institutions making non-conforming (or conventional) loans, will either warehouse the loans or sell them to other financial institutions that will package a bundle (or securitize) the loans and sell them on the secondary mortgage market.  For more information on how the secondary market works, see the link for Commercial Mortgage Backed Securities.  

As these packaged, securitized, loans are sold from one investor or another, you may receive notice to change the name of the payee on your checks for principal and interest payments, or change the address to which you send the payment (in which case the right to collect payments or service the loan has been sold.)

Both Fannie Mae and Freddie Mac offer programs for multi-family housing with terms between five and 30 years with up to 30-year amortization.  

The Federal Home Loan Mortgage Corporation 

(known as Freddie Mac) is a government sponsored enterprises, a public corporation chartered by the US Congress (12 USC § 1451 Sec 301-310) in 1970, whose purpose is to:

1. provide stability in the secondary market for residential mortgages
2. respond appropriately to the private capital market
3. provide ongoing assistance to the secondary market for residential mortgages ...
4. promote access to mortgage credit throughout the Nation... 

Freddie Mac purchases single-family and multifamily residential mortgages and mortgage-related securities.  

Freddie Mac offers a small loan program for loans between $300,000 and $1 million.  Loans typically have an 80% Loan to Value ratio, minimum 1.25 x DSCR (Debt Service Coverage Ratio), and are non-recourse.  The maximum amortization period is 25 years, but 30 years can be permitted on a case-by-case basis.  

Government National Mortgage Association

(known as Ginnie Mae) is a wholly-owned corporation of the United States of America within the Department of Housing of Urban Development.  Ginnie Mae administers a Real Estate Mortgage Investment Conduits (REMIC) program and guarantee investors the timely payment of principal and interest on Mortgage Backed Securities (MBS) backed by federally insured or guaranteed loans — mainly loans insured by:

• Federal Housing Administration (FHA) 
• Department of Veterans Affairs (VA) 
• Rural Housing Service (RHS) of the Department of Agriculture
• Office of Public and Indian Housing (PIH) of the Department of Housing and Urban Development 

As a government owned agency, it is the only Mortgage Backed Securities that are guaranteed by the United States government. As such, they are considered to be "risk free" in the bond markets.  

Federal National Mortgage Corporation

(known as Fannie Mae), is a government sponsored enterprises, began in 1938 as an agency of the federal government, created to bring stability to the U.S. housing market that was, at the time, ravaged by the depression. In 1968, Fannie Mae became a privately owned and managed corporation. At that time, the U.S. Congress re-chartered Fannie Mae as a private company, mandating that it operate with private capital on a self-sustaining basis.  

Fannie Mae purchases mortgage loans from primary lenders, such as mortgage companies, savings institutions, and commercial banks. Fannie Mae's major sources of income come from two lines of business: 1) mortgage portfolio investments and 2) guaranty fees on its mortgage-backed securities.  

 3MaxExpress loans are designed for stabilized properties with 90% occupancy for 90 days, with no minimum and a $3 million maximum loan size.  Loans typically have an 80% Loan to Value ratio, minimum 1.25 x DSCR (Debt Service Coverage Ratio), and are recourse for loans under $1.5 million.  .

MyCommunityMortgage is a flexible mortgage product for 2-4 units designed for low- and moderate-income borrowers, features include:

• Borrowers contribute $500 toward down payment and/or closing costs
• 3% borrower contribution for duplex or more 
• extra flexibility on credit history

Conforming Loan Limits (2007)

• Intermodal Transportation

• Retail

• Transit Oriented Development

• Developer's Definitions

• Residential

  • Senior Housing

  • Student Housing (College/University) 

  • Reposition Class C to B Multifamily

  • Foreclosures as Investments

• Oklahoma Brokers Relationship Act

• Property Disclosures

• Phase I Environmental - Commercial Properties

• Utility Information for Central Oklahoma

• Issues for non-resident Ownership of Property

Commercial Mortgage Backed Securities Market Alert updated weekly

Additional Information Can be Found by Clicking:

• First Time Buyer of Real Estate
• Information on Credit Reporting.  
• The Mortgage
• Real Estate Contracts in Oklahoma
• Title Insurance / Land Title
• Financial Definitions
• Residential Loan Guarantees from: Fannie Mae, Freddie Mac and Ginnie Mae (Mortgage Backed Securities)