Freddie Mac: A Mortgage Giant
Freddie Mac and Fannie Mae are two organizations that help make the mortgage market run smoothly. Their basic task is to guarantee and purchase mortgage loans and sell them in the secondary market. That means more money is available to lend and cheaper rates for you.
Due to the housing and economic crisis in 2008, Freddie Mac, a publicly traded company, was taken over by the government in September 2008. Besides purchasing conventional loans, Freddie Mac participates in the Making Home Affordable program including the HARP refinance loan and other programs designed to avoid foreclosure.
Freddie Mac provides tools and resources for lenders and homebuyers on their Website FreddieMac.com covering many topics. To help you understand how Freddie Mac can help you (as a borrower or homebuyer) learn about Freddie Mac and:
- Underwriting Loans
- Mortgage Rates - PMMS (Primary Mortgage Rate Survey)
- Avoid foreclosure
- Purchasing Real Estate
Freddie Mac – Underwriting Loans
Freddie Mac has technical underwriting guidelines, which lenders must follow when selling their loans to Freddie Mac. If lenders sell a loan that does not match the criteria in Freddie Mac’s selling guide, then they face a buy-back risk if the borrower defaults. However, lenders can apply stricter underlying criteria, or overlays. Here is a common example for a HARP refinance loan:
Freddie Mac does not require a minimum FICO score for a HARP mortgage; however, many lenders set FICO limits. So if your FICO score was 580 and the lender rejects your application, shop around.
Freddie Mac’s site also has loan limits for conforming and super-conforming mortgages. The loan limits are generally updated annually, but remained the same for 2011 and 2012. You can see the current loan limits on Freddie Mac’s Website.
Lenders can underwrite loans manually or through automated underwriting systems. The Freddie Mac automated system is called Loan Prospector. If your income is harder to determine, then compensating factors can help you get your loan approved. Some of the compensating factors may be:
- Low cash reserves but high income
- Low cash reserves but other property
- Low credit score but high down payment
Freddie mac does not deal directly with the borrower. Get a mortgage rate quote for a conventional loan (purchase or refinance), FHA loan, or VAloan from a bills.com mortgage provider.
Freddie Mac – Mortgage Rates
Freddie Mac does not set your mortgage rates and mortgage fees. Freddie Mac purchases loans from lenders based on market interest rates (comparable money market and treasury bonds) and the risk level of the bundled loan packages.
However, Freddie Mac runs a weekly survey of the mortgage interest rates, through their PMMS (Primary Mortgage Market Survey). Here is an example of rates for the week ending June 21, 2012:
|30-Yr FRM||15-Yr FRM||5/1-Yr ARM||1-Yr ARM|
|Fees & Points||0.7||0.6||0.6||0.5|
Remember, those are average interest rates and vary by region, lender, and borrower.
Freddie Mac: Helping you Avoid foreclosure
There are many solutions open to you if you are having trouble paying your mortgage. Some of these solutions will help you stay in your house, and others will help you exit your house without a foreclosure or bankruptcy. Some of the possible solutions to stay in your house and make more affordable payments include refinance, forbearance, and modification. If you cannot make payments then a short-sell or deed-in-lieu are solutions, which let you sell your house without a foreclosure. Freddie Mac participates in Making Home Affordable Programs including:
Freddie Mac’s Web site also recommends that you consult a HUD housing counselor. The counseling is free and can help you prepare yourself and your credit for a home purchase, or help you find a solution if you are having trouble making payments.
Freddie Mac Helping you to Purchase Real Estate
Freddie Mac.com provides information about purchasing real estate, including:
Benefits of buying or renting: Freddie Mac outlines 6 reasons when buying makes sense and 6 reasons when renting makes sense. Since Freddie Mac purchases mortgage loans they want to make sure that you are a good borrower who can maintain your monthly payments.
Here are a few of the reasons to buy a house:
- You have reliable income and good credit.
- You have at least 5% down payment.
- You aren’t moving for at least 4 years.
Here are some reasons Freddie Macs gives for renting:
- Your move frequently due to career or life style.
- You don’t want to deal with home maintenance.
- You want extras such as a gym, pool or tennis courts.
Additional Benefits and Responsibilities in buying a home: Freddie Mac also lists a set of additional advantages, while reminding you that home ownership brings costs and responsibilities. Owning a home means that you have a stable environment that is “yours”. You may enjoy a tax benefit on the interest and property taxes (check with your accountant or professional tax preparer) and you can build equity into your home, so that you will have a place to live without rent or mortgage payments when you retire. However, your home ownership brings extra costs, including maintenance costs, property taxes, property insurance, and monthly mortgage payments, which need to be, make on time. You do carry the risk of declining home prices, especially if you need to sell you property and move.
Buying a Freddie Mac owned property (HomeSteps): Freddie Mac also has homes for sale, due to foreclosures or short sales. Its company HomeSteps offers homes through its website or through local agents. It is possible to purchase a single home or in bulk, if you are an investor.
FreddieMac.com is a source of information for a homebuyer and provides you with information about the mortgage process (applying for a loan, costs of a loan) and calculators to help you figure out your closing costs and monthly payments for different mortgage terms. I recommend that you browse through Freddie Mac’s website to help you understand the mortgage process.
Finding a Mortgage
Freddie Mac is not a direct lender. You will work with a lender to find a mortgage best suitable to your needs, whether it be for a home purchase, refinance or home equity loan. If you already have a loan and are having trouble making payments, then you will need to work with your lender (not Freddie Mac) to find a loan modification, short sale or other solution to avoid foreclosure.
To help you find a mortgage best suited to your needs, Bills.com offers you many resources, articles and tools including a mortgage affordability calculator, refinance calculator, and mortgage payment calculator to help you through the mortgage process.