Resources for Lenders
When individuals or families are ready to become homeowners, they will likely need the help of mortgage lenders in order to finance their purchase. A mortgage is a loan that is specifically taken out to buy a new home, and mortgages are traditionally paid monthly over a series of several years. Lenders distribute loans to qualified applicants who will repay the money, with interest, over an established period of time.
Sometimes, a lender may need to replenish funds so that they can provide more mortgage loans to potential homeowners. That is where the Federal National Mortgage Association, also known as FNMA or Fannie Mae, steps in. Fannie Mae is a government-sponsored enterprise (GSE) that helps moderate- to low-income borrowers acquire mortgages. It also works to stimulate the housing market. One of its most important functions involves buying loans from lenders, which frees up funds for these lenders to create more loans in the future. Investing in the mortgage market creates more liquidity for lenders, while also preventing them from using unethical subprime lending practices.
How does Fannie Mae work with lenders?
Fannie Mae loans are not a part of the primary mortgage market, so all of the company’s loans originate from outside lenders. In a way, the FNMA serves as a bridge between lenders and consumers that can potentially benefit both parties. It purchases whole loans and provides lenders with cash to distribute to more borrowers. Lenders also have the option of trading a group of loans for mortgage-backed securities (MBS), which can be kept on their portfolio or sold to investors worldwide. A loan with a house as collateral is a much more secure investment for financers.
Note: Learn more about how the FNMA works with lenders by downloading our comprehensive guide.
By purchasing these mortgages from lenders, Fannie Mae ensures that there is liquidity in the market and private lenders have enough financial security to loan to more borrowers. Even after the mortgage has been purchased, the lender will continue to service the loan. It continues to collect payments from the borrower and send principal and interest on to the FNMA, after keeping the servicing fee. This financial setup brings many benefits to lenders and borrowers, while still making U.S. housing an appealing venture for investors worldwide. Some benefits for lenders include:
- Access to a broader and more efficient set of mortgage products and services for their borrowers.
- Less debt owed to them.
- Protection from loss when homeowners do not comply with their loan terms.
What are some of the requirements for Fannie Mae lenders?
In order for a lender to receive the benefits of partnering with Fannie Mae, it must meet certain lending guidelines. Fannie Mae lenders must agree not to employ unethical subprime lending practices, which are loans offered at higher interest rates to “greater risk” borrowers with poor credit. Furthermore, the Fannie Mae mortgages must fall within the limits for a conventional loan limit for a single-family home. The maximum loan amounts vary depending on the state where the mortgage is being issued and the cost of the area. To be approved by the FNMA, a lender must:
- Have its primary business purpose as the originating, selling or servicing of residential mortgages for at least two years. The lender must have the appropriate licensing, adequate facilities and staff that demonstrate the ability to complete these services.
- Have internal audit and management control processes to evaluate and monitor the overall quality of its loan production and servicing.
- Have written procedures for quality control, servicing, and the approval and management of vendors and other third-party service providers.
- Have a fidelity bond and an errors and omissions policy in effect with such coverage amounts as the FNMA requires, and agrees to modify them as necessary to meet requirements.
- Meet Fannie Mae’s counterparty requirements, including having a minimum net worth of at least $2.5 million, a track record of profitability and specified capital rating.
- Satisfy any additional eligibility criteria that Fannie Mae
Available Types of Fannie Mae Mortgages for Lenders
Fannie Mae generally operates with two primary lines of business, single-family and multifamily mortgages. The single-family mortgages offer lenders help in serving today’s homebuyers and homeowners. On the other hand, multi-family mortgages provide financing for quality rental housing throughout the country. While both types of mortgages are intended to pay for housing, there are a few differences between a single-family and multi-family Fannie Mae Mortgage.
Single-Family Fannie Mae Mortgage
Single-family mortgages are loans that are dispersed by mortgage lenders to individuals or families looking to purchase a stand-alone home that is intended to house one family. Through the FNMA, lenders are able to offer products such as the 30-year fixed-rate mortgage. These mortgage options provide homeowners with stable and predictable payments over the life of their loans, making them a very popular option for borrowers. Lenders are given access to a variety of financing solutions that they can utilize to support the housing market’s diverse homebuyers and homeowners.
Fannie Mae loan buyouts enable lenders to create tailored loans that meets their borrower’s needs. The terms of single-family mortgages usually include constant updates on how the loan is being managed in order to ensure that all lender guidelines are being followed. Both lenders and borrowers receive financial protection from the various checks and balances that are established by the FNMA.
You can learn more about available mortgage types in our in-depth Fannie Mae guide.
Multifamily Fannie Mae Mortgage
The Fannie Mae multi-family loan program provides financing for the purchase or refinancing of properties that have five or more available housing units. In fact, the FNMA is one of the largest sources of funding for the multi-family housing market in the United States. Some examples of properties that can be considered multi-family include apartment buildings and condominiums, seniors housing, student housing, affordable housing and manufactured housing.
This program allows for housing to be constructed for a specific tenant concentration, such as students, military personnel or corporate employees. However, the percentage of specific tenants is limited to a certain percentage unless the loan was acquired though a dedicated program (i.e. student housing program, senior housing program). Fortunately, Fannie Mae interest rates are some of the lowest in the industry, and the company accomplishes this while still offering customized terms for each mortgage.