Mortgages: FHA, Fannie Mae, Freddie Mac..... who's confused?

Confused by FHA, Freddie Mac and Fannie Mae?  Me too.

I recently had a visit from a friend who asked if he qualified for the HARP program, the Home Affordable Refinance Program (also known as HAMP, Home Affordable Mortgage Program).  If you’re not familiar with the two terms, these programs are designed to help financially struggling homeowners avoid foreclosure by modifying loans making them more affordable and sustainable over the long term.  The HARP and HAMP programs are issued for Freddie Mac and Fannie Mae backed loans, not FHA (Federal Housing Administration) loans.  The FHA has separate loan programs.

Not able to answer my friends question with 100% certainty, I decided to do more research to better understand what the different programs are and specifically how they apply to individual loans.  I thought I would share my findings with you; however I must start by explaining the differences between Freddie Mac, Fannie Mae and FHA.

So here goes.

Federal Housing Administration (FHA).  A FHA loan is insured by the Housing and Urban Development (HUD).  What does it mean when a loan is insured by the FHA?  FHA loans are insured for the lender, not for the borrower, meaning if the homeowner is forced to default on the loan, the FHA assumes responsibility for protecting the loan and thus the lender.

Federal Home Loan Mortgage Corp (Freddie Mac) and Federal National Mortgage Association (Fannie Mae).  Freddie Mac and Fannie Mae are government-sponsored enterprises.  This Sponsorship enables Freddie Mac and Fannie Mae to borrow money at a lower cost and in larger sums.  The advantage of this type of entity is they help reduce the cost of mortgage credit.  Freddie Mac and Fannie Mae work in two separate markets-Fannie Mae works with many lenders and banks while Freddie Mac works mainly with savings and loans.  They both buy the loans, allowing the institutions to free up the money enabling them to continue lending.

During the typical lifecycle of a mortgage it gets serviced (or issued) by the original lending bank, however some time after closing the loan itself is sold to Freddie Mac or Fannie Mae.  For example, my mortgage is serviced by Citibank and held by Freddie Mac. I bring this up because the HARP program is only for Freddie Mac and Fannie Mae held loans.  FHA loans have their own programs for modification.  So to answer my friends’ question, he first has to determine if his loan is backed by Freddie Mac or Fannie Mae.

Ok, so now we are all totally confused?!  The best advice I can give you is to start with the type of loan you have.  You can call your mortgage servicer and ask.  Once you have that answer you can investigate what options you may have. Keep in mind an advantage to using your current servicer to refinance is that you may save money on mortgage taxes at closing.  Most importantly ASK.  Don’t be embarrassed, the entire country is struggling and there are options out there.  Be honest and upfront and you will get the guidance you need.  If you would like more information, contact us.

-Kristen Rishe, North Fork Real Estate Inc.