Fannie Mae Single-Family Mortgages

Fannie Mae offers lenders a wide variety of mortgage products, eligibility options and solutions to help meet their borrowers’ needs. The flexibility of options can help investors lend money confidently and continue to grow their businesses. Mortgage lenders that are looking to make safe investments on borrowers can find success by providing them with loans for single-family homes. While Fannie Mae also purchases loans for multi-family housing, such as apartment buildings or other similar complexes, single-family homes tend to be a safer investment.

The Federal National Mortgage Association (FNMA) does not offer loans directly to homebuyers. Instead, they purchase and guarantee mortgages through the secondary mortgage market. Fannie Mae and its sibling enterprise Freddie Mac (Federal Home Loan Mortgage Corporation) are the two largest purchasers of mortgages on the secondary market. Both corporations were founded by Congress and are considered government-sponsored enterprises (GSE). While the FNMA purchases both multifamily and single-family homes, single-family mortgages are the most common by a wide margin.

What is a single-family mortgage?

A single-family mortgage is a loan that is distributed to a borrower who is looking to be the sole homeowner of a residence built for one family, person or household. However, Fannie Mae operates on the secondary mortgage market, meaning that they purchase loans that have already been issued. The originating and servicing of loans is managed by mortgage lenders that have been approved and serve under contract.

Loans are distributed to borrowers under varying terms (e.g., 15-year, 30-year, fixed-rate, adjustable-rate mortgage loans, etc.) Borrowers will pay the loan for its entire duration and the balance will typically amortize, or reduce, until it is paid off completely. The monthly payments usually also include both principal and interest on the loan. Once this mortgage loan is established, Fannie Mae can begin to create single-family mortgage-backed securities. Each party involved in the transaction benefits from the successful servicing of these loans.

In summation, a Fannie Mae-approved financial institution or other lender creates a loan for a borrower. They can then choose to sell those loans to Fannie Mae as whole loans or mortgage-backed securities. Lenders can use the funds from the sale to originate more mortgages and further expand the housing market and homeownership in America. Fannie Mae will group the loans that they purchase and create for foreign investors to invest in. When a mortgage-backed security is issued, Fannie Mae guarantees that they will supplement amounts received by the trust to permit timely payment of principal and interest on the securities.

Requirements to Become a Fannie Mae Single-Family Mortgage Seller

Before a company is approved, Fannie Mae will determine its qualifications by reviewing relevant factors about the business. Obtaining approval will allow a company to sell and/or service single-family loans (excluding loans delivered under a negotiated contract). Typically, the review process can take three to four months to complete. Once approved, a customer account manager will help the company set up by providing training on selling and servicing Fannie Mae loans. Some factors used to determine eligibility include a mortgage company’s financial condition, organization, staffing capabilities, experience in selling and servicing loans, writing processes and operating procedures.

The general seller/servicer approval process follows these steps:

  1. Review the Fannie Mae Path to Approval toolkit.
  2. Complete the self-assessment tutorial.
  3. Submit the application to become an approved seller/servicer.
  4. Work with the designated sponsor to determine eligibility.
  5. Submit all the necessary documentation and pass all required reviews.
  6. Receive approval to be a Fannie Mae seller/servicer.
  7. Complete the training and setup process for originating and servicing loans.

To discover more about the Fannie Mae eligibility requirements, download our free guide.

Maintaining Seller/Servicer Eligibility

In order to sell and service mortgages for Fannie Mae homes, a lender must comply with certain established requirements. Failing to meet any of these mandatory standards will be considered a breach of contract. Furthermore, contracts can be terminated if any of the circumstances and qualifications that were set during the time of Fannie Mae’s consideration are negatively changed after approval. The status of seller/servicer can also be terminated if a lender has not sold any loans to Fannie Mae in a certain amount of time, usually over one year. Lenders must also comply with the following financial requirements:

  • Payment for the maintenance fee each calendar year
  • Pay an activation fee if a lender is being reactivated
  • Maintain a minimum Lender Adjusted Net Worth

If a lender faces a material decline in their Lender Adjusted Net Worth or in their profitability, then it may also be in breach of the Fannie Mae lender contract.

Note: Any updates to the requirements for gaining and maintaining Fannie Mae approval will be posted on the Fannie Mae website and updated in the Single-Family Mortgage Selling Guide.

How do Fannie Mae single-family mortgages affect borrowers?

Fannie Mae loans allow lenders to customize the terms of their loans in order to best meet their borrowers’ needs. Some of these programs aim to create loans for a target demographic or a specific housing purposes. For example, there are mortgage programs that are specifically aimed at providing borrowers with low down payments and others that target rural areas and underserved communities. Additionally, Fannie Mae loans can be distributed for home construction, renovation and energy improvements. In short, Fannie Mae provides affordable mortgages at reasonable interest rates for various options in housing.

One of the primary goals of Fannie Mae is to give mid to low-income families the opportunity to become homeowners. These programs allow lenders to meet the diverse needs of today’s buyers and grow their business. According to consumer research conducted by Fannie Mae, the primary barrier to homeownership for first-time home buyers is saving money for the down payment and closing costs. In order to combat this issue, Fannie Mae prohibits all of their approved lenders from subprime lending practices and often covers the down payment for borrowers looking to purchasing a home.

Furthermore, programs like the Fannie Mae HomePath ready buyer offer borrowers financial advice on homeownership. After completing the education courses provided in the program, home buyers can receive additional discounts on their mortgage.

Download our comprehensive guide for more details on Fannie Mae-back loans.

What is Fannie Mae?

The Federal National Mortgage Association (Fannie Mae) provides affordable housing finance options for homebuyers and renters. Fannie Mae does not provide original mortgages. Rather, the organization purchases existing mortgages and guarantees them with government sponsorship. Fannie Mae mortgages have a fixed rate and can have a lifespan as long as 30 years.

Who is eligible for Fannie Mae?

Fannie Mae guarantees multi-family and single-family mortgages and loans. To qualify for either type of loan, an applicant must have an income lower than the local average, and the property he or she wants to buy must be worth less than the federal maximum. Further, applicants must have a credit score above 620. However, the minimum required credit score may change depending on how many properties the applicant plans to purchase.