Freddie Mac Explained

Federal Home Loan Mortgage Corporation

Commonly known as Freddie Mac is a government sponsored enterprise of the United States. It is a stockholder owned corporation authorized to make loans and loan guarantees.

Created in 1970 to expand the secondary market for mortgages in the United States, a Freddie Mac buys mortgages, pools them and sells them as mortgage-backed securities to investors in the open market. This enables the supply of lending money for mortgages and ensures that money continues to be available for new home purchases. The primary method for making money is by charging a guarantee fee on loans that they have purchased and securitized into mortgage-backed security bonds.

FMac provides funding to mortgage lenders two different ways. First , it borrows money by selling debt securities and it purchases mortgages and mortgage-backed securities. Secondly, it guarantees investors against credit losses on securities backed by pools of conforming mortgages.These guaranteed mortgage-backed securities can be held as investments by financial institutions selling loans to FMac or sold to mortgage investors, including FMac itself. In return for guaranteeing the timely payment of principal and interest to investors owning mortgage-backed securities, Freddie Mac collects fees from mortgage-originating financial institutions.

Freddie Mac securities carry no government guarantee of being repaid. This is explicitly stated in the law that authorizes government sponsored enterprises, on the securities themselves, and in many public communications issued by FM. Despite this, there is a wide misperception that these notes carry some sort of implied government guarantee, and the vast majority of investors believe that the government would prevent them from defaulting on their debt.

Freddie Mac programs are available in an assortment of flavors. Please review each of the mortgage programs. Call Funding America at 1-347-294-4200 and we will answer all of your questions.

• Freddie Mac Fixed Rate
• Freddie Mac A-Minus
• Freddie Mac Stated Income
• Fannie Mae Fixed Rate
• Fannie Mae Expanded Approval
• Fannie Mae Stated Income
• Fannie Mae Streamline Refinance
• Quick & EZ (SISA) Fixed Rate
• Lite Doc
• Accelerated Approval Program
• Jumbo A Fixed Rate
• Alt A Fixed Rate
• Jumbo Lite Doc
• Jumbo Accelerated Approval Program
• HOME 97
• Freddie Mac Home Possible Fixed

In addition, both Fannie Mae and FHA loan programs are also available:

• Fannie Mae My Community Fixed
• FHA Fixed Rate
• FHA Streamline Refi
• VA Fixed Rate
• Fannie Mae ARMs
• Fannie Mae Stated Income ARMs
• Fannie Mae Expanded Approval ARMs
• Freddie Mac ARMs
• Freddie Mac A-Minus ARMs
• Quick & EZ (SISA) Fixed Term LIBOR ARMs
• Jumbo A ARMs
• Alt A ARMs
• Lite Doc Fixed Term ARMs
• Jumbo Lite Doc ARMs
• Accelerated Approval Program ARMs
• Jumbo Accelerated Approval Program ARMs
• Freddie Mac Home Possible ARMs
• Fannie Mae My Community ARMs

Freddie Mac Fixed Rate Program
Although some of our mortgage programs vary with time (economically), here is an outline summarizing one of our FMac fixed programs.

Eligible Borrowers - the following types of borrowers are permitted:

• All borrowers must reside within the US
• U. S. Citizens
• Permanent Resident Aliens
• Non-Occupying Co-Borrowers
• Non-Permanent Resident Aliens

• All Freddie Mac 100% transactions must be underwritten through LP (Loan Prospector) and receive an “Accept Eligible”. LP Caution loans are NOT permitted
• Available for Purchase Transactions only
• Minimum LTV is 97.01%
• Offering Code for LP submissions is 220
• Non-Occupying Co-Borrowers are not permitted. All borrowers must occupy the subject
• Maximum debt-to-income ratio is 41%
• Borrowers must contribute at least three (3%) percent of their own funds, which may be used for closing or financing costs, prepaids and/or down payment. (If closing or financing costs and prepaids do not total 3%, the difference must be applied toward down payment)
• Source of down payment may come from any of the sources specified in our guidelines
• Gift funds from a Related Person
• Sweat equity is not permitted
• An Affordable Second may not be used to satisfy the three- percent borrower funds requirement

Subordinate financing must meet Affordable Second guidelines with the following exceptions...

• MI coverage and LTV/TLTV/HTLTV ratios must comply with Freddie Mac 100 requirements
• Affordable Gold 97 income limits will apply to the Freddie Mac 100 mortgage
• Borrower’s personal cash and borrower education requirements are waived
• Two (2) months PITI reserves are required
• Temporary buydowns are not permitted

1. All 80/20 transactions must be underwritten through LP and receive an Accept / Ineligible response (acceptable response as long as 80/20 is the only reason for being ineligible).Caution loans are NOT permitted
2. Eligible for single family owner-occupied principal residence, purchase and no cash out refinance transactions only
3. All borrowers must occupy the property
4. Borrower must contribute a minimum of $500.00 from own funds toward closing costs, prepaids or downpayment. (See Special Feature Code requirements if < 3% Borrower contribution)
5. Minimum credit score of 700 required – regardless of LP response
6. Maximum debt-to-income ratio is 41% - regardless of LP response
7. Subordinate financing may be provided by an institutional closed-end fixed or adjustable rate second, HELOC or an approved Community Second loan
8. Two (2) months PITI reserves are required
9. Initial Interest Option is NOT eligible for 80/20 Financing
10. Temporary buydowns are NOT permitted

The 80/20 financing option and the 100% FMac transactions are only two types of fixed rate programs we currently have available. Alt 97% transactions have some similarities with the 100% option. Call your Funding American professional for further details.

Appraisal Requirements
The appraisal must be completed by a state-licensed and/or state-certified appraiser

• Any appraisals made “subject to repairs” will require a final inspection

On 80/20 Option loans regardless of the LP feedback certificate message, the only acceptable appraisal forms are:

• Uniform Residential Appraisal Report (URAR Form 70)
• Individual Condominium Unit Appraisal Report (Form 465)

Mortgage Insurance
Mortgage insurance is required for all loans with LTVs in excess of 80%. There are few exceptions.

Reduced Mortgage Insurance Option
Eligible loans must meet the following requirements:

• Receive a Feedback Message indicating that the loan is eligible for Reduced MI
• Loan term greater than 20 years
• 1-2 Unit primary residences ONLY
• LTVs greater than 85% and less than or equal to 95%
• Purchase transactions ONLY

A mortgage worksheet can be filled out and submitted for review or you can call the branch manager for a complete mortgage application.

For any questions, you can contact us here.

1.347.294.4200