You’ve probably heard of Fannie Mae and Freddie Mac, but do you know what they do? The Federal National Mortgage Association (“Fannie Mae”) and the Federal Home Loan Mortgage Corporation (“Freddie Mac”) are often called “government-sponsored enterprises” (GSEs). These entities are privately owned, but they get support from the federal government. The GSEs play a significant role in the mortgage market; in fact, Fannie Mae and Freddie Mac own or guarantee many of the mortgages in the United States.
If you have a Fannie Mae or Freddie Mac loan and are having trouble paying your mortgage or are facing a foreclosure, various workout options are potentially available to you. Homeowners with a Fannie Mae or Freddie Mac loan, for instance, have access to specific mortgage-relief options after suffering a financial hardship due to COVID-19. For example, suppose you received a forbearance under the Coronavirus Aid, Relief, and Economic Security (CARES) Act (see below). In that case, you won’t necessarily have to repay skipped amounts in a lump sum when the forbearance period ends. Under Fannie Mae and Freddie Mac guidelines, you might qualify for:
Fannie Mae and Freddie Mac provide stable funding for the housing and mortgage markets, but they don’t make loans directly to home buyers. Instead, the GSEs support the nation’s housing finance system through the secondary mortgage market by purchasing or guaranteeing home mortgages.
Here’s how the secondary mortgage market works: A borrower typically gets a home loan directly from a bank or mortgage company. In most cases, though, the original lender won’t hold on to the loan. Lenders usually sell the loans they originate to other banks or investors, like Fannie Mae or Freddie Mac, on what’s called the secondary mortgage market. The mortgages that the GSEs buy must meet strict criteria. These loans are called “conforming loans.” After purchasing loans from banks and mortgage companies, the GSEs either hold the mortgages in their portfolios or aggregate (pool) them into debt securities called mortgage-backed securities, which are then sold to investors. This process is called “securitization.” To reduce the investors’ risk, Fannie Mae and Freddie Mac often guarantee payment of principal and interest on their mortgage-backed securities in exchange for a fee. By guaranteeing the loan, the GSEs agree to pay the investor even if the borrower defaults.
Because Fannie Mae and Freddie Mac continually purchase mortgages from banks and mortgage companies, lenders have a steady cash source to keep making loans to new borrowers.
The CARES Act permits homeowners with federally backed mortgage loans, like ones that Fannie Mae or Freddie Mac purchased or securitized, to get a forbearance. The forbearance period will last up to 180 days and can be extended up to 180 additional days.
The Federal Housing Finance Agency (FHFA), which regulates Fannie Mae and Freddie Mac, suspended foreclosures and REO evictions until February 28, 2021. The foreclosure moratorium applies to Fannie- and Freddie-backed, single-family mortgages. The REO eviction moratorium applies to properties that Fannie Mae or Freddie Mac has acquired through foreclosure or deed in lieu of foreclosure transactions. Also, across the country, various states and cities have imposed temporary foreclosure and eviction suspensions.
Borrowers with Fannie Mae and Freddie Mac loans get access to specific mortgage-relief programs and foreclosure avoidance options. One possibility is a Flex Modification, a unique loan modification program for borrowers with GSE-owned loans. The Flex Modification program generally lowers an eligible borrower’s mortgage payment by around 20%.
If you received a CARES Act forbearance, you get access to different repayment options, like Flex modifications and other kinds of modifications, when the forbearance expires.
To learn more about Flex Modifications and other workout options for borrowers with Fannie Mae loans, go to Fannie Mae’s Know Your Options website. To find out if Fannie Mae owns your mortgage loan, go to www.fanniemae.com/loanlookup or call 800-2Fannie (800-232-6643). For more information about Freddie Mac and how it works, go to the Freddie Mac website. To find out if Freddie Mac owns your mortgage loan, use Freddie Mac's Loan Lookup tool.
If you’re behind in your mortgage payments—or think you soon will be—and want to learn about different ways to avoid a foreclosure, consider contacting a HUD-approved housing counselor. A housing counselor can help you understand the specific options available to you, whether Fannie Mae, Freddie Mac, or another entity owns your home loan. You can also call your servicer to learn about different options. If you want to learn about foreclosure procedures in your state, including how long the process takes, talk to a foreclosure lawyer.