Fannie Mae and Freddie Mac are Government Sponsored Enterprises (GSEs) or “Agencies” that buy loans from mortgage banks and either hold them in their portfolios, or package them into “Mortgage Backed Securities.”
They were created by Congress as ostensibly private companies to provide liquidity to the mortgage market. They are now effectively controlled by the U.S. Government, and they dominate the mortgage market.
“Conforming” and “Conventional” loans are underwritten to comply with Fannie or Freddie guidelines. Fannie and Freddie guidelines often seem too demanding, illogical or overly stringent. This is b/c they are so heavily regulated now (in post-meltdown America), with a “one size fits all” approach to every borrower. Many jumbo lenders follow Fannie and Freddie guidelines too.
The differences between Fannie and Freddie are now relatively insignificant (with the exception of High Balance LTV limits**), as their respective guidelines are now very similar. Sometimes one or the other is more flexible, but there is not a lot of consistency. Mortgage lenders simply need to remember to try to get a Fannie approval if they can’t get a Freddie approval, and vice versa.
** Fannie now allows High Balance LTVs to match Low Balance LTVs; hence we can now offer a 95% LTV loan to $625,500.
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