Rarely is your lender the business to which you send your monthly payment when you take out a home loan. Mortgages are typically packaged with other mortgages and sold to investors as mortgage-backed securities on Wall Street. However, between you and the financial markets, your mortgage may have received a Freddie Mac or Fannie Mae guarantee.
History of Freddie Mac
To make it simpler to create mortgages for homes, the federal government established the Federal Home Loan Mortgage Corporation (also known as FHLMC, or “Freddie Mac”) in 1970. Freddie Mac is a “government-sponsored enterprise,” a combination of a government organization and a for-profit business. An investment in debts that are guaranteed by Freddie Mac carries a government guarantee, just in case, even though it’s not supposed to be funded by taxpayers.
What Freddie Mac Does
By purchasing and reselling them, Freddie Mac increases the amount of capital available for mortgage lending. A bank can sell Freddie Mac a batch of mortgages it creates that comply with its standards, known as “conforming loans.” By doing this, the bank has more money to lend to more people. Freddie Mac then sells the loans to investors with the assurance that, in the event that the borrowers default on their payments, it will reimburse the investor.
How Freddie Helped You
If Freddie Mac acquired your loan — and if you obtained a conforming loan, it was likely acquired by either Freddie Mac or the analogous Fannie Mae — you would have saved money. Investors will pay more for Freddie Mac’s mortgage-backed securities because they are aware that the U S. government will reimburse them if something goes wrong. A higher price on the securities market translates into a lower interest rate. This gets passed on to you. According to Mark Zandi of bond rating agency Moodys, the effect of Freddie Mac is approximately one-half point in 2013. For example, if you took out a loan at 4. 25 percent with a Freddie Mac guarantee; this guarantee prevented you from paying 4 75 percent.
You might also be eligible for some of the benefits offered under the Making Homes Affordable program if you have a loan that is held by Freddie Mac. Even if you owe more money than your home is worth, the Home Affordable Refinance Program might still allow you to refinance at a low rate. If you’re having trouble making payments, the program can help you modify your mortgage to make it more manageable, and the Home Affordable Foreclosure Alternative can help you prevent foreclosure if you need to sell your home.
Since 1996, Steve Lander has worked as a writer, gaining experience in the real estate, technology, and financial services industries. His work has been featured in specialized journals like the Minnesota Real Estate Journal and the Minnesota Multi-Housing Association Advocate. Lander graduated from Columbia University with a Bachelor of Arts in political science.
FAQ
What does it mean when my mortgage is sold to Freddie Mac?
September 21, 2021. Lenders frequently sell mortgages to other businesses, such as Freddie Mac. This practice allows lenders to make more home loans. Don’t panic if you got a letter saying “Borrower Notification: Freddie Mac Has Purchased Your Mortgage Loan.”
Why did my mortgage company sell my loan?
Lenders typically sell loans for two reasons. First, free up funds that can be used to lend money to other borrowers. The other is to sell the loan to a different bank in order to raise money while still having the option to service the loan.
What if my loan was bought by another company?
You shouldn’t be impacted by the transfer or sale of your mortgage loan. “A lender is not permitted to alter the loan’s terms, amount, or interest rate from those detailed in the documents you initially signed. The payment amount should not just change, either. Additionally, it shouldn’t affect your credit score, according to Whitman.
Why would Fannie Mae buy my mortgage?
By purchasing mortgages from banks, credit unions, and other lenders, Fannie Mae enables them to keep providing credit. Banks would continue to hold debt if Fannie Mae didn’t buy mortgages, which would prevent them from having enough money to issue additional mortgages.