Question

Define, describe and provide examples of the differences of Fannie Mae, Freddie Mac, and GNMA mortgages their underwriting guidelines and specific secondary market needs and requirements. Provide examples and application of each

Answer 1

Fannie Mae stands for Federal National Mortgage Association whereas Freddie Mac is the Federal Home Loan Mortgage Corporation and GNMA stands for Government National Mortgage Association,

Fannie Mae was Government-Sponsored Enterprise and US Government guaranteed the loan provided by it. Its main function is to buy loans from banks and convert those mortgages into mortgage backed securities and sold them as derivatives to various stakeholders.This is done to save housing market from crash and also realize dream of homeownership by citizens of America.

Freddie Mac was established by congress in 1970 to free up bank funds so they could provide more loans to the needy ones. It was a Government-Sponsored Enterprise and indulge in reselling loan packages on secondary market.

GNMA is a federal government corporation which was created to guarantee the timely payment of principal and interest on mortgage backed securities issued by approved lenders.GNMA provides assurance in order to facilitate lenders to fetch better prices for MBS in the capital markets.

Example for Fannie mae's function - Fannie Mae issued a fraud alert to lenders, warning about income misrepresentation involving Southern California mortgage brokers and service industry applicants.

Example for Freddie Mac's function - when hurricane Delta approached Louisiana Freddie Mac reminded mortgage servicers of its disaster relief policies for homeowners to pacify them at this juncture.

Example for GNMA's function - GNMA has announced new restrictions on the eligibility of HMBS for adjustable rate loans.

Differences:

GNMA acts as guarantor for federally backed loans whereas Fannie mae buys mortgages from large commercial banks and Freddie mac buys mortgages from small banks.

Fannie mae buys loans from banks and keeps it in its books while freddie mac resells loan packages in secondary market and GNMA exists solely to guarantee loans

Guidelines:

Fannie Mae and Freddie Mac issued general guidelines for the borrowers to fulfil to avail loan facilities like providing gross total income, employment history, credit score, payment history, bank accounts, etc

GNMA - An applicant must meet certain eligibility requirements in order to be approved as a Ginnie Mae Issuer which are as follows:FHA Approval, Fidelity bonds and errors and omission insurance, exclusionary endorsement, financial statements, acceptable assets, unaccpetable assets, credit reports, etc