Lending Entities Explained


We hear many acronyms for the players in the mortgage business, but who are these entities that control it and sometimes operate behind the scenes?

Fannie Mae was chartered by Congress and established in 1938 to provide liquidity, stability and affordability to the housing industry and mortgage markets.

To paraphrase Jack Nicholson in the movie, “Mars Attacks,” they accomplished two out of three, and for a government entity that ain’t bad.

Fannie Mae does not make loans to consumers.

They work with mortgage entities to provide affordable mortgages to home buyers and buy the mortgages from the lenders in bulk.

Their agreement with the U.S. Treasury Department was changed in 2009 so that the Treasury could provide them capital to correct monetary deficiencies through 2012.

The Federal Home Loan Mortgage Association is commonly known as Freddie Mac.

Their mission is the same as Fannie Mae’s, to provide affordability, liquidity and stability to the housing markets. (2 out of 3 …)

They, like Fannie Mae, purchase home loans from the entities that originate mortgages.

To understand the magnitude of what they do, in 2008 they guaranteed $358 million in home loans.

Their main area of concentration is the conventional conforming loan market.

In addition, Freddie Mac helps renters through their multi-family loan programs that assist developers creating apartment/multi-family projects.

The Federal Housing Administration or FHA was created in 1934 when The National Housing Act was passed.

This act was created because of the number of people losing their homes because of the 1929 depression and their role is to provide mortgage insurance to lenders on FHA approved loans.

They became a part of the Department of Housing and Urban Development (HUD) in 1965.

An FHA loan provides an affordable way to enter the housing market, because if you are credit worthy, only a 3.5 percent down payment is required.

FHA also has more relaxed qualification standards than Fannie Mae or Freddie Mac.

On the FHA Web site, they state: “FHA is the only government agency that operates entirely from its self-generated income and costs the taxpayers nothing.”

You have to wonder if that is still true.

Land contract loans were very popular in the 1970s and ’80s when interest rates climbed into the teens.

A land contract loan is the same as an owner carry back where the seller of the property self-finances the new buyer.

We have seen a few of these today because many people who have lost their homes cannot re-establish credit with mortgage lenders, however, they have the means to purchase a home and make the monthly mortgage payment at today’s lower housing prices.

Ray Pugel is a designated broker with Coldwell Banker Bishop Realty. Contact him at (928) 474-2216.


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