Government-Sponsored Enterprises:
Fannie Mae and Freddie Mac Today, Part 2

Aug 2, 2007 - We’ve all heard of Fannie Mae and Freddie Mac, in various tones and across different topics. But who are they? How do they operate in the world of mortgages, money, and home ownership?How are they different from other banks and lenders? In a series of articles, we examine the good, the bad, and the curious about government-sponsored enterprises, otherwise known as Fannie Mae and Freddie Mac.

As the housing market cools, and the subprime market continues its meltdown, Fannie Mae and Freddie Mac have stepped forward with plans and regulations designed to ease the pain. In this article, we look at some of their proposed solutions.

Homestay

In April, as the woes from the subprime meltdown increased and millions of Americans faced foreclosure in the coming years, Fannie Mae and Freddie Mac pledged at least $20 billion in a new “Homestay” program, designed to help homeowners in danger from the market.

Select Your State Alabama Alaska Arizona Arkansas California Colorado Connecticut Delaware District of Columbia Florida Georgia Hawaii Idaho Illinois Indiana Iowa Kansas Kentucky Louisiana Maine Maryland Massachusetts Michigan Minnesota Mississippi Missouri Montana Nebraska Nevada New Hampshire New Jersey New Mexico New York North Carolina North Dakota Ohio Oklahoma Oregon Pennsylvania Rhode Island South Carolina South Dakota Tennessee Texas Utah Vermont Virginia Washington West Virginia Wisconsin Wyoming Select Property Type Single Family Multi Family Town House Condo Mobile Home Select Credit Profile Excellent Good Fair Poor

The plan is built on refinancing subprime borrowers into new 40-year, fixed-rate loans to prevent immediate foreclosure. The companies will purchase $20 billion in fixed-rate and adjustable-rate mortgages in order to offer them to current subprime borrowers. The plan also includes: 

Many critics, particularly in California, were happy about the effort but not the probable execution. Representatives noted that the refinancing programs would be virtually meaningless in most areas in the state, where the median home price significantly exceeds limits set by the mortgage companies.

Other lawmakers noted the restrictions that negate the good intentions of the plan. Refinancing is only aimed at homeowners with good credit, not those in some state of foreclosure. In effect, those in direst need are left to work out a solution on their own. Many critics say the program does not go far enough, instituting a moratorium on future foreclosures until homeowners and the economy can adjust to the new reality.

The plan is scheduled to begin this summer.

Underwriting Regulations

In July, Fannie Mae and Freddie Mac announced they would only buy mortgages that comply with guidance issued last year, requiring strong underwriting standards for “exotic” loans. These include adjustable-rate mortgages and interest-only loans.
The goal of this move was to reinforce the necessity for safe underwriting practices in promoting solid homeownership. All mortgages that are considered exotic or nontraditional made on or after September 13 will be subject to the rules.

This regulation came about in part due to the lessons learned from the subprime collapse. The companies hope that better standards for underwriting and lending will make the market more secure, and homeowners better able to pay for and keep their homes.

With plans like these, Fannie Mae and Freddie Mac hope to lead the market back to stasis, preventing future foreclosures, ensuring strong loans, and continuing to build steady and secure home ownership.

Read our continuing series where we examine other aspects of GSEs, including an overview of their duties, their initiatives to increase home ownership, and their surprising scandals.

Select Your State Alabama Alaska Arizona Arkansas California Colorado Connecticut Delaware District of Columbia Florida Georgia Hawaii Idaho Illinois Indiana Iowa Kansas Kentucky Louisiana Maine Maryland Massachusetts Michigan Minnesota Mississippi Missouri Montana Nebraska Nevada New Hampshire New Jersey New Mexico New York North Carolina North Dakota Ohio Oklahoma Oregon Pennsylvania Rhode Island South Carolina South Dakota Tennessee Texas Utah Vermont Virginia Washington West Virginia Wisconsin Wyoming Select Property Type Single Family Multi Family Town House Condo Mobile Home Select Credit Profile Excellent Good Fair Poor

Other Articles:

Government-Sponsored Enterprises: Fannie Mae and Freddie Mac Today

Fannie Mae Eases Down Payment Requirement

Jumbo Loans Get Little Help from Fannie Mae and Freddie Mac

Trouble Hits GSE Giants Fannie Mae and Freddie Mac

Personalized Refinance Quotes Select State Alabama Alaska Arizona Arkansas California Colorado Connecticut Delaware D.C. Florida Georgia Hawaii Idaho Illinois Indiana Iowa Kansas Kentucky Louisiana Maine Maryland Massachusetts Michigan Minnesota Mississippi Missouri Montana Nebraska Nevada New Hampshire New Jersey New Mexico New York North Carolina North Dakota Ohio Oklahoma Oregon Pennsylvania Puerto Rico Rhode Island South Carolina South Dakota Tennessee Texas Utah Vermont Virginia Washington West Virginia Wisconsin Wyoming Single Family Multi Family Town House Condo Mobile Home Credit Profile Excellent Good Fair Poor

Fannie Mae & Jumbo Mortgage Rates     Just One Click! = Current Rate Chart