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.
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 by purchasing or guaranteeing home mortgages through the secondary mortgage market.
Here's how the secondary mortgage market works. A borrower typically gets a home loan directly from a bank or mortgage company. But in most cases, 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." Fannie Mae and Freddie Mac often guarantee payment of principal and interest on their mortgage-backed securities in exchange for a fee to reduce the investors' risk. 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.
If you have a Fannie Mae or Freddie Mac loan, are having trouble paying your mortgage, or are facing a foreclosure, various workout options are potentially available.
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 the COVID-19 pandemic. If you have a Fannie Mae or Freddie Mac loan, you're most likely eligible for a payment suspension or reduction called a "forbearance."
Borrowers with Fannie Mae and Freddie Mac loans also get access to other 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 COVID-19 forbearance, you get access to different repayment options, like Flex modifications and other kinds of modifications, when the forbearance expires.)
Go to Fannie Mae's Know Your Options website to learn more about Flex Modifications and other workout options for borrowers with Fannie Mae loans. To find out if Fannie Mae owns your mortgage loan, go to https://www.knowyouroptions.com/loanlookup or call 800-2Fannie (800-232-6643).
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.