Fannie Mae, Freddie Mac, the VA, and the FHA Don't Make Loans.

You hear the names "Fannie Mae" and "Freddie Mac" bandied about all the time, perhaps in newspaper stories or perhaps in a description of loan qualifications given you by your loan officer.

Likewise, having an "FHA" loan or a "VA" loan doesn't mean that the FHA or the VA actually made a loan to a home buyer or qualifying veteran. People don't go to the VA to get a home loan. They don't go to

Fannie Mae, Freddie Mac, or the FHA either, for that matter. They go to lenders or brokers.

Fannie Mae is a nickname given to the Federal National Mortgage Association. Fannie Mae was formed in 1938 by the federal government for the sole purpose of fostering home ownership. Today, as in those days, "fostering home ownership" means providing liquidity in the mortgage marketplace. Freddie Mac, or the Federal Home Loan Mortgage Corporation, was formed in 1968, again by the federal government, to provide the very same function.

Neither Fannie Mae nor Freddie Mac makes loans; they establish lending guidelines so that lenders can buy loans from and sell them to one another as they see fit. Loans are now a commodity. They may vary in amount and be on different types of properties, such as single units, duplexes, or condominiums. However, they're all the same; the only thing different about them is the names on the loans. Since loans are now a commodity, the only differentiating element is the price one pays for the loan.

In 2008, the federal government took over both Fannie Mae and Freddie Mac and placed them under government control through the newly formed Federal Housing Finance Agency.

Similarly, the Veterans Administration and the Department of Housing and Urban Development have the VA and FHA loan programs. They too establish guidelines for lenders to follow for the same reason: to provide liquidity when lenders need it.

Another aspect of VA and FHA loans is that if those loans go bad, the lender will get its money back. VA and FHA loans are "guaranteed" to the lender. As long as the lender making the original loan approved the loan using established government guidelines for these loans, if the loan goes into default, the lender is saved from the loan's going bad. However, if the VA loan was approved when it shouldn't have been and the VA points this out to the lender, the lender is stuck. The very same thing occurs under FHA rules; if an FHA loan goes into default through no fault of the original lender, the FHA will reimburse the lender for the outstanding loan balance.

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