The Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation are popularly known as Fannie Mae and Freddie Mac, respectively. Both Fannie Mae and Freddie Mac are government-sponsored enterprises, or private entities that receive funding from the federal government. They have a significant impact on the mortgage market, but they do not make loans to homeowners. Fannie Mae and Freddie Mac instead participate in the secondary mortgage market. If one of these entities owns your loan, you may have additional options to prevent a foreclosure that may not be available under an ordinary loan.
You may not necessarily know if Fannie Mae or Freddie Mac currently owns your loan. Each enterprise offers a Loan Lookup tool on its website that you can use to see whether your loan appears in its records. The two enterprises combine to own or guarantee nearly half of existing mortgages and the overwhelming majority of new mortgages.
The lender that provided you with your home loan likely will sell it to another party, which will be responsible for managing the loan. Sometimes a bank or a mortgage company will sell a mortgage to Fannie Mae, as long as it meets the requirements of the entity. Fannie Mae can sell groups of mortgages to private investors as securities, or it may keep a mortgage in its portfolio. If it sells a mortgage, Fannie Mae may guarantee investors that they will be paid regardless of whether the borrower keeps up with payments. This makes it an attractive, relatively low-risk investment option. Meanwhile, lenders can use the money received from Fannie Mae to make more loans. This means that more people can afford to buy a home.
If you have a Fannie Mae loan, you should explore the enterprise’s Know Your Options website so that you are aware of your alternatives to foreclosure. You may be able to obtain a relatively lenient repayment plan or forbearance agreement. Another option available for Fannie Mae loans is the Flex Modification program, the successor to the former Home Affordable Modification Program (HAMP). Using this program can reduce a mortgage payment substantially. Read more here about the Flex Modification program.
A newer counterpart to Fannie Mae, Freddie Mac similarly contributes to the liquidity of the mortgage market. While Fannie Mae buys mortgages from commercial banks, Freddie Mac buys mortgages from smaller banks. Freddie Mac is smaller than Fannie Mae in terms of income and assets, but it has more revenue and equity. Like Fannie Mae, it pays lenders for loans with money that the lenders can use to issue more loans. Also like Fannie Mae, Freddie Mac aggregates its loans into mortgage-backed securities to sell to investors. These investors pay a fee to ensure that they will receive the principal and interest on the securities, regardless of whether the borrower ever pays.
The Freddie Mac website and its associated My Home website provide homeowners with information on how they can avoid a foreclosure. They may be able to use the Flex Modification program through Freddie Mac as well. Freddie Mac housing counselors can help you sort through your options. If you have not yet purchased a home, you can get pre-purchase counseling from Freddie Mac or its non-profit affiliates to help you take this step knowledgeably.