Explanation Of Fannie Mae And Freddie Mac Loans
Mortgage loans are dictated by a set of rules of compliance in the United States. Lenders and borrowers can therefore be guaranteed equality. The United States Congress formed a group of financial services corporations to set forth necessary guidelines. These corporations are identified as Government-Sponsored Enterprises, or GSEs.
Loans seen to be GSE guideline-conformant are called conforming mortgages. Loans that do not comply with these specific guidelines are simply called non-conforming mortgages. Moreover, there is also something called a jumbo loan, which is a loan that doesn’t comply with GSE guidelines solely because the amount of the loan is above the restrictions established by the guidelines.
There were very little guidelines when it came to residential mortgage loans before 1970. Fannie Mae was authorized to buy these kinds of mortgages as a lender in 1970 by the United States government. Universal documents pertaining to mortgages were developed in collaboration with Freddie Mac back then. Fannie Mae and Freddie Mac also worked together to develop conforming loan standards we still use nowadays. Conforming mortgages are highly sought after by both Fannie Mae and Freddie Mac, so they have more liquidity than their non-conforming loan counterpart.
Only those loans that meet the conditions established by the Office of Federal Housing Enterprise Oversight are purchased by Fannie Mae and Freddie Mac. Fannie Mae and Freddie Mac must search for loans that comply with such criteria as debt-to-income home buyer ratio limitations and documents required before the loans can go through as a result. The October-to-October changes in median home price are also a particular factor that determines the highest loan price. Non-conforming loan demands are also surprisingly low, since the Office of Federal Housing Enterprise Oversight demands what mortgages Fannie Mae and Freddie Mac can purchase, repackage and sell.
Also to note is that a temporary increase in the conforming loan limitations for high-cost areas in the United States was integrated into the 2008 economic stimulus package. Lenders were still choosing not to honor the bills as late as March 30, 2009, regardless of it having been signed into law by President Bush on February 13, 2008. Even if you don’t think it will affect you as a possible house buyer, it’s rarely a bad idea to know these kinds of underlying issues in the housing market.
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