Los Angeles Real Estate, Fannie, Freddie, And Ginnie
There are three names to know in real estate: Fannie, Freddie, and Ginnie. These three companies offer mortgage securities to investors—Investors can “buy” the loans, keeping money in the system. What happens is that the mortgages are pooled into different areas. From there, investors can purchase mortgage backed securities (MBSs), putting money back into the system while earning them a regular return through principal and interest payments. This constant cash flow, returning money to lenders and allowing them to offer more mortgages to qualified applicants, is due to the efforts of Fannie Mae, Freddie Mac, and Ginnie Mae.
At the end of the Great Depression, the US government was looking for a way to make home ownership more readily possible for the lower to middle class of American citizens. The Federal National Mortgage Association, better known as Fannie Mae, was founded by Congress in 1938. Fannie Mae was created to provide stability and affordability in the housing market. The company doesn’t offer loans directly to consumers; instead, they work with banks and other lenders to make sure that there is money available for mortgages, and that the mortgages are affordable for those who need them.
Freddie Mac, or the Federal Home Loan Mortgage Corporation, was charted by Congress in 1970. Like Fannie Mae, it is a publicly held company that buys mortgages from lenders. This re-deposits cash into the lender’s supplies, allowing the money to be lent to the next qualified applicant. Although both Fannie Mae and Freddie Mac were developed by Congress, and exist to meet very similar goals, there is a healthy level of competition between the two, making sure prices stay down, and loans remain affordable.
The Government National Mortgage Association (Ginnie Mae), on the other hand, serves as a connection between lenders and the Federal housing markets. It was created in 1968, and was originally a branch of Fannie Mae. It deals almost exclusively with government backed loans, those offered through the VA and FHA, for example. Unlike Fannie Mae and Freddie Mac, Ginnie Mae guarantees investments; even if the home owner defaults on his or her loan, the investor will still receive their money.
With a constant cash flow moving through the financial side of the housing market, more people are able to buy homes. Ginnie Mae, for example, is one of the main reasons the FHA can offer loans to homeowners without a huge down payment or a lot of closing costs. Without these three programs, it would be much more difficult for buyers, especially first time buyers, to get the loan they need to purchase a home.
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