A. I conferred with our loan expert, JVM Lending, for an easy to understand synopsis. It is important to be educated on the distinctions of these because effectively over 90% of all mortgages are Fannie Mae, Freddie Mac or FHA loans. This was his explanation.

FANNIE MAE and FREDDIE MAC

Fannie and Freddie are Government Sponsored Enterprises or “GSEs”.  Prior to the 2008 “meltdown,” this meant the Federal Government gave them certain advantages. Today, they are (for the most part) owned and operated by the Federal Government.

Fannie and Freddie were set up to “provide more liquidity” for mortgages; they buy mortgages from banks and investors and “bundle them into securities” and sell them on Wall Street. This access to the capital markets brings more mortgage funds and lower rates to borrowers/consumers. Without Fannie and Freddie, rates would be much higher. This is because there is not enough private sector demand for mortgages to keep rates as low as they are.

Fannie and Freddie do not originate loans. They only buy them from other lenders and investors. There is little difference between Fannie and Freddie, other than some minor guideline nuances. They are separate entities doing largely the same thing, although Fannie is much larger than Freddie.

Lenders underwrite loans subject to standards that “Conform” to Fannie and Freddie guidelines. Fannie/Freddie will not buy loans that do not “Conform”. This is why we refer to “Conforming” loans. The “Conforming Loan” is currently $625,000 in our area.

Loans that do NOT “Conform” to Fannie/Freddie guidelines are referred to as “Non-Conforming” loans. They include FHA, Jumbo and Portfolio loans.

NON-CONFORMING LOANS, JUMBO AND PORTFOLIO LOANS

“Non-Conforming Loans” include “Jumbo” and “Portfolio” loans. Jumbo loans have loan amounts that exceed Conforming and FHA limits ($625,000 and $729,000 in the Bay Area). The rates for these loans are higher than Conforming/FHA rates.  Portfolio loans are loans that are held by their originating lender; they are not sold to investors.

FHA LOANS

FHA (Federal Housing Authority) Loans are loans that are underwritten to FHA or HUD (Housing and Urban Development) standards. These guidelines are looser and more flexible than Fannie/Freddie’s (“Conforming”) guidelines. FHA was initially set up to help less well-off borrowers buy homes. But today, FHA has no income limits and borrowers do not have to be “first time buyers”

FHA does NOT buy loans the way Fannie or Freddie does. They only insure them. This is a key distinction. FHA loans are originated, underwritten and funded just like Fannie/Freddie loans. ”Ginnie Mae” is the name of a security backed by FHA Loans.

You can call your lender to confirm what type of loan you have and if it is backed by any of these organizations.