FHFA, HUD, FNMA, FHA, FHLMC: Who Are These People?
Well, they’re not really people. People certainly work there but in reality, they’re all government agencies that have some major connection with the mortgage industry. Some are relatively new and some not so much. The mortgage industry has so many acronyms it can get really confusing and while borrowers don’t need to know the details of each of these agencies it’s good to know who they are and what role they play in the all-important housing industry.
FHFA. This is the Federal Housing Finance Agency. FHFA was created relatively recently back in 2008 as part of the larger Housing and Economic Recovery Act of 2008, right in the middle of the housing crisis that brewed in the mid-to late 2000s. Various federal agencies were in some serious financial trouble as cash flow dried up. FHFA essentially “cleaned house” and took over agencies that were faltering. FHFA regulates Fannie Mae, Freddie Mac and 11 other Federal Home Loan Banks.
HUD. The Department of Housing and Urban Development. Created in 1965, HUD today has also combined the responsibilities of previous agencies into one. As it relates to housing, HUD’s primary responsibility is to insure home loans approved using guidelines set forth by the Federal Housing Administration, or FHA loans. When borrowers take out an FHA loan, they also take out two separate insurance policies, an upfront policy that is rolled into the loan amount and an annual policy paid in monthly installments. HUD established the Government National Mortgage Association, or GNMA (Ginnie Mae) which issues underwriting guidelines FHA lenders must follow.
FNMA. The Federal National Mortgage Association is a government agency formed in 1968. Its mission is to provide stability and liquidity in the mortgage market. FNMA buys conventional loans that lenders make. Buying loans in this secondary market ensures the lender is able to replenish its credit line, enabling the lender to make more loans. FNMA dominates the conventional mortgage market in the United States. More loans are approved using Fannie Mae guidelines than any other type of mortgage.
FHLMC. The Federal National Mortgage Corporation was created soon after Fannie Mae in 1970 and has a similar mission as Fannie Mae. Lenders can approve a conventional loan using Fannie or “Freddie Mac” guidelines. Many lenders are approved to underwrite under either while other lenders are primarily committed to just one of the two. Lenders can sell loans underwritten to Freddie Mac standards enabling it to sell the loan individually or “in bulk” directly to Freddie Mac, replenishing the lender’s credit line.
FHA. The Federal Housing Administration is a department overseen by the Department of Housing and Urban Development, or HUD. The National Housing Act of 1934 created the first edition of the FHA as a way to help the country recover from the Great Depression. FHA loans require a small down payment, much lower compared to loans issued by banks during that period. The FHA is not a mortgage company but can be thought of as an insurance agency. When an FHA loan goes into default the lender is compensated for the loss. This compensation is financed through two separate forms of mortgage insurance, an upfront policy whose premium is rolled into the loan amount and an annual premium paid in monthly installments. The FHA loan is the most popular loan choice for first time buyers.
The Department of Veteran’s Affairs was created in 1944 to help soldiers returning from WWII more easily assimilate back into civilian life. The VA loan requires no down payment, no monthly mortgage insurance with competitive rates and programs. The VA loan carries a guarantee that covers 25% of the loss to the lender should the loan ever go into default. However, the VA loan is the best performing loan in today’s marketplace, despite the lack of a down payment. VA loans are available to veterans, active duty personnel with at least 181 days of service, National Guard and Armed Forces Reserve members with at least six years of service and unremarried surviving spouses of those who died while serving or a result of a service-related injury.
USDA. The United States Department of Agriculture was created to assist those to buy and finance a home located in a rural area. The USDA loan requires nothing down and carries a guarantee to the lender. Should the loan ever go into default, the lender is guaranteed compensation. This guarantee is finance by two separate forms of mortgage insurance, an upfront premium rolled into the loan amount and an annual premium paid in monthly installments. The USDA loan program is available as a 30 year fixed rate loan.