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Here’s a mortgage primer on which loans are no longer the flavor of the month on Wall Street. They’re the Michael Vick’s of the mortgage world, they were once very popular on but now nobody wants to be associated with them. Okay, that’s a little bit too harsh since these loans didn’t kill dogs. Then again, these loans have put families in dire straits so lets keep the Michael Vick analogy.

Loans the Wall Street doesn’t like:

• THE LOANS WITH THE REALLY REALLY REALLY LOW RATE AND LOW MONTHLY PAYMENT

Also called: 1%, NEGATIVE AMORTIZATION, NEG AM, OPTION ARMS, PAY OPTION ARMS or

“A CAN OF WHOOP ASS WAITING TO HAPPEN”

• THE LOANS FOR BORROWERS WITH REALLY REALLY REALLY BAD CREDIT HISTORIES

Also called: SUBPRIME, NON PRIME, POOR CREDIT, 2/28s, 3/27s, or

“I GUESS THIS IS WHAT I GET FOR NOT PAYING MY BILLS”

• THE LOANS FOR BORROWERS WHO HAVE GOOD CREDIT BUT WHOSE OVERALL LOAN APPLICATION DOESN’T MEET FANNIE MAE OR FREDDIE MAC’S STANDARDS

Also called: ALT-A or

“SO I’VE GOT GOOD CREDIT AND A GOOD JOB BUT I’M PENALIZED FOR NOT SAVING ANY MONEY”

• THE LOANS FOR BORROWERS WHO CAN’T REALLY REALLY REALLY SHOW HOW MUCH MONEY THEY’VE MADE OR HOW MUCH THEY HAVE SAVED UP

Also called: STATED INCOME, STATEDSIVA, SISA, NO DOC, or

“DON’T THEY HAVE LOANS FOR PEOPLE WHO DON’T HAVE JOBS?”

• THE LOANS FOR BORROWERS WHO REALLY REALLY REALLY DON’T WANT TO PUT ANY MONEY DOWN

Are called: 80/20, 100% Financing, NO MONEY DOWN, 103%, 107% or

“I WANT A LOAN WHERE I GET TO KEEP MY MONEY IN CASE MY JOB GETS OUTSOURCED TO INDIA”

• THE LOANS FOR BORROWERS WHO REALLY REALLY REALLY DON’T WANT TO PAY AN AMORTIZED PAYMENT

Also called: INTEREST ONLY, IO, or

“IF I LIKE PAYING DOWN PRINCIPAL MY PAYMENT GETS RECAST TO A LOWER PAYMENT EVERY MONTH”

• THE LOANS FOR BORROWERS WHO REALLY REALLY REALLY WANT TO BUY A HOME THEY HAVE NO INTENTION OF LIVING IN

Also called: INVESTMENT PROPERTY LOANS, NON OWNER OCCUPANCY, NOO or

“I’M GOING TO BE THE NEXT DONALD TRUMP”

• THE LOANS FOR BORROWERS WHO REALLY REALLY REALLY MAKE A LOT OF DOUGH

Also called: JUMBO, NON CONFORMING, SUPER JUMBO, MILLION DOLLAR LOANS, ANYTHING OVER $417,000 or

“THAT’S PRETTY LOW FOR A RATE OF RETURN AND PRETTY HIGH FOR A MORTGAGE INTEREST RATE”

It remains to be seen if Wall Street still likes:

• THE LOANS FOR BORROWERS WHO REALLY REALLY REALLY HAVE NO INTENTION OF LIVING IN THEIR HOMES FOR 15 to 30 YEARS

Also called: ADJUSTABLE RATE MORTGAGES, ARMS, 3/1, 5/1, 7/1, 10/1, TEASER RATE LOANS, HYBRID LOANS, BALLOONS or

“THE AVERAGE PERSON MOVES EVERY 5 to 7 YEARS, SO WHY SHOULD I GET A LOAN FOR 30 YEARS?”

Wall Street will always like:

• THE LOANS WITH REALLY REALLY REALLY NO RISK

Also called: FHA, VA, CONFORMING, FANNIE MAE, FREDDIE MAC or

“THE LOANS THAT MAKE UP THE MAJORITY OF THE AMERICAN MORTGAGE LANDSCAPE”

Real estate is a hot topic on the web. One quick search for “real estate” on google nets you 275,000,000 results. That’s a lot of indexed pages on real estate alone. From blogs to news feeds, the amount of information on real estate is overwhelming. If you’re looking for non-location specific real estate sources start here:

• AOL Real Estate
• CNN Money Real Estate
• Forbes Real Estate
• MSN Money
• Real Estate Journal (Wall Street Journal)
• YAHOO Real Estate

With stories like “Business Card Confirms Real-Estate Salesman Is Eddie Money,
” the Onion would’ve made it to the front this list if they had a real estate section.

Mortgage rates are all based on risk. The lower of a risk the loan is the lower the rate will be. Second mortgages are riskier loans. In the unfortunate event of a foreclosure the second mortgage holder gets paid second, not first. If threes not enough money to payoff the second mortgage often they take a loss. Since they are higher risk loans to investors the carry higher rates of return (so investors will purchase them).

A mortgage is considered a lien on your property. A first mortgage is in the first lien position and is the least amount of risk because they are the first to get paid should the borrower default and the home be sold through sheriff’s auction or through some other type of sale. A second mortgage is in the second lien position and is at a considerably higher risk than the first so a 2nd mortgage usually has more strict lending guidelines and credit requirements and will also charge a higher interest rate to make up the difference of this greater risk. If you also had a third lien on your property, they would have the greatest risk and even much worse terms than the first and 2nd liens.

If a homeowner files for BK the second mortgage is not guaranteed to be paid off. So the lender who makes a loan in the form of a second mortgage vs. a first mortgage assumes a higher risk. The lender offsets that risk by charging a higher rate.

Most second mortgages are also held in the lenders own loan portfolio rather than being sold to Fannie Mae, etc. Given that, there is considerable variation in rates, terms, qualification criteria, etc. from lender to lender.

When you take out a 100% one loan you will pay for private mortgage insurance (PMI). When a loan is sold on the secondary market to Fannie Mae or Freddie Mac they will only insure 80% of the value of the home. This insurance covers the other 20% of your loan in the event that you don’t’ pay and the property goes to foreclosure. Second mortgages, when used on an 80/20 combo loan program are self insured and for this reason carry a higher rate. Meaning you don’t have to carry PMI.

Rates on second mortgages will always be higher because the risk to the lender is higher. The rates will vary as with a first mortgage, depending on your credit worthiness, ability to pay and combined loan to value ratio. Combined loan to value ratio is the combination of the first and second mortgage compared to the sale value of your home. The lower the ratio is, the better rate you will get.

What makes them rise? What makes them fall? Is it the Fed? The Economy? Inflation? Banks? The President? Fannie Mae? Freddie Mac? The answer is sometimes complex, but rates are moved by a number of related factors, and believe it or not you are one of those factors!

As interest rates (yields) decline, investment customers can become more or less interested, depending on the direction of economic growth, inflation, appetite for the product and several other factors. Typically, though, the lower those rates get, fewer investors are interested in putting them on their books.

Of course, it’s not always as easy or simple as that. Mortgage market makers serve not one client, but two. They serve the folks who want the highest possible return on their investments and the homeowner / homebuyer who wants the lowest possible interest rate. Simultaneously, rates need to be high enough to attract investors and low enough to attract borrowers. Confused? It can be a complex and confusing dance to understand.

In order to attract investors, sellers of bonds must compete with one another to get their money. They do this by offering a variety of instruments (also called products) with differing structures of risk and return over given periods of time. These offerings compete with other investments which are similar in performance, such as US Treasuries, corporate bonds, foreign bonds, and others.

Investor demand for a given kind of investment plays a considerable role in moving market yields, because investors literally have hundreds of places to put their money. It’s a crowded marketplace with many sellers of various products competing for those investor dollars. Investor demand for specific product rises and falls with changes in investment strategies. If demand falls enough a change must be made to attract investors again. How to attract them again you say? The answer usually comes as a raise in interest rates.

The Federal Reserve Board known as the FED in the industry actually controls interest rate movements to control the economy and inflation. Before 1913 when the FED was created the markets were actually very unstable. They play a crucial role in the economy. If rates are left low for too long then inflation can run out of control so the FED raises rates to counteract this from happening.

Mortgage money can come from many sources, including deposits at banks and brokerages, but most comes from investors through what is collectively known as the “Capital Markets”. This is where investors interested in purchasing certain kinds of debt instruments — bonds, in this case — come to buy those items.

Who are these investors, and why are they so fickle? Mostly, they are people like you and I. They want two opposing things; low payments on your debt, especially your mortgage, and high returns on your investments. You (the investor) will only buy so many low-yielding bonds (mortgage or otherwise) because you will take you money elsewhere if the returns are too low.

Bond prices and bond yields always move in opposite directions. When economic indicators, such as the gross domestic product and unemployment rate, forecast a strong economy, long term interest rates move up. When these indicators predict a slower economic growth, long term interest rates usually decrease. Mortgage rates and long term rates often move in tandem.

Not all foreclosed properties are available at discount.

Do your research and do your home work when looking at foreclosures. Know the are you are buying in, find out what is a reasonable price for a similar home. Look at the property and bring some one else with you to be an objective observer. Write out lists of possible repairs, if you see anything suspicious have a specialist do an inspection.

Even though there has been a high amount of foreclosures in the nation, they have been touted as “easy money” by real estate investors trying to sell seminars more than real estate. Regardless of where the hype came from the demand is still perhaps more than the supply. For this reason banks have been able to sell their homes more and more at “market value.” For instance, Freddie Mac through Home Steps will actually renovate the homes themselves in order to make them available for full market value. Their goal is to sell them to “end users,” or people who plan on buying them as primary residences. In fact, HUD will only sell their homes to end users first, and then open the auction up to investors. Because of this, HUD auctions are flooded with investors, getting a bid in only after end users get a shot at them.

In most of the country’s “hot” real estate markets, competition for foreclosures and stagnation of pricing has made the spreads on foreclosure rehabs and flips significantly lower than before, thereby increasing the risks associated with buying foreclosures. Consider targeting a market which may be slightly off the beaten path where demand is increasing as part of your strategy, to help you diversify the risks of buying foreclosures in hot markets.

Doing your “due diligence” is key. It’s important to have a prelim title report done on the subject property(either by you or a 3rd party) to make sure there are no clouds on title.

The key to investing in foreclosures is to start early. Contact you local title company and have lists of NOD’s emailed to you. This will give you a starter list of homes that are facing foreclosure. If you have issues getting the list then contact a Real Estate professional you trust. They can get one for you.

Typically, competition for foreclosures is very high. Be sure to act quickly if you see a good opportunity.

There are high risks and hard work involved with buying foreclosure homes. A foreclosure property buyer needs to spend a great deal of time to find homes that are in foreclosure and to go through public records to make sure that the foreclosed properties do not have unexpected liens, such as tax liens, which could drive up the purchase price. Beginners should consider buying bank owned properties, which are often free from the usual risks associated with foreclosure homes.

Without a doubt to be successful in investing in foreclosures the investor must get to the homeowner early. Many serious foreclosure investors drive through otherwise well kept neighborhoods looking for homes in an unkempt condition. This can often (but of course not always) be a clue that the property is close to going into foreclosure.

You can use a simple formula to make sure that you have some cash flow or make money if buying a rehab project. You can take your after repaired value times 70% less repairs. (ARV x .70)-R = maximum offer. Obviously you can sway a bit from this depending on the area but this rule of thumb is used by professional real estate investors across the nation. You may want to contact contractors in your area to gain an understanding of what repairs costs. This formula takes into consideration your holding cost until you find a renter or buyer.

A mortgage loan that is held as an investment by a bank , rather than being sold on the secondary market. It is usually due to the fact that the loan does not comply with the underwriting guidelines set by the secondary market investors.

Most portfolio lenders follow Fannie Mae and Freddie Mac guidelines but can also give exceptions to your loan if they choose to do so.

Very few lenders are portfolio lenders. Very few people qualify for portfolio loans. Talk to a mortgage specialist to see if you qualify.

It gets confusing because portfolio lenders are also involved in typical mortgage banking. Portfolio lenders, are commonly known as Savings ampersand Loan institutions. They are called portfolio lenders, because they originate loans for their own portfolio, but don’t sell them to the secondary market.

If you have a loan which is difficult to fund because your scenario is outside of the standard underwriting guidelines, we can often look at portfolio lenders with you and negotiate for exceptions to the underwriting rules on your behalf.

Because the default risks associated with making Portfolio Loans, portfolio lenders always charge a higher interest rate to justify the higher risks. In addition to the intrinsic risks, portfolio loans, by definition, are mortgages that lenders will hold in their portfolio for the entire loan term, and cannot resell the loan to recoup their investment capitals, portfolio loan borrowers should expect to be charged higher fees.

The are also some lenders that are not considered rational portfolio lenders, but do have some programs that are portfolio programs only. These lenders are lending money from their own portfolios and hold onto the mortgage. A couple examples would be Washington Mutual and Bank United.

World Savings is an example of a portfolio lender. They do not sell their loans to other investors or lenders.

The underwriting guidelines for a portfolio product can be far more flexible than for a loan which is being sold to a secondary investor. This flexibility can often mean that the underwriter of the portfolio program can use a much more common sense approach when evaluating things such as past credit problems, prior bankruptcies, lack of cash reserves, etc. In some portfolio programs there is no minimum credit score requirement although the borrowers use of other credit and past credit history is a determining factor in any loan program.

There are lenders available that will keep a portion of their loans as portfolio loans and sell the rest to recoup money and continue to lend. The percentage of the loans they keep depends on the investor involved and how much funding they have.

Thee really is no benefit to the consumer to stay with a portfolio lender other then never having to change where you send your payment. In today’s modern world you can pay your bill online even if the mortgage is sold to a loan servicer. So do not be afraid of you mortgage being sold and do not let a local bank use this as a scare tactic to keep you away from mortgage brokers.

Editors Note: Due to the mortgage and credit crunch, Low Down Payment Mortgage Programs may no longer be available. If you’re in need of a Denver Colorado Mortgage contact us to discuss your mortgage options.

Here’s no question about it: Buying a first home is a big financial commitment. In most cases, a home is the largest single purchase an individual or family will make in a lifetime. However, because of the tax advantages afforded to homeowners, buying a home also can be one of the best financial decisions you’ll ever make. Problem is, many would-be homeowners remain renters simply because they mistakenly believe mortgage lenders require that buyers come up with 20 percent of the purchase price as a down payment. While it’s true lenders feel it’s less risky to work with buyers who are able to bring a substantial down payment to the table, the standard 20 percent requirement is fast becoming a relic of the past. In recent years, lenders have become more flexible in working with first-time homebuyers by creating a variety of special programs that require only a small down payment. These programs, combined with the most favorable interest rates in two decades, have encouraged growing numbers of renters to consider the tremendous benefits of home ownership.

Private Mortgage Insurance: Most major lenders offer privately insured mortgages, which generally require a 10 percent down payment (although some lenders offer loans with a 5 percent down payment to buyers with exceptional credit). These loans typically are not limited by maximum loan amount or purchase price limitation.

While the list of programs offered by individual lenders is too extensive to mention in detail, here are some common programs you are likely to come across as you work with your real estate agent to purchase your first home: Federal Housing Administration (FHA): FHS mortgages allow homebuyers to purchase a home with as little as a 5 percent down payment, and to finance all non-recurring closing costs. The current maximum loan amount in most urban markets is $151,725. In addition, borrowers are allowed to use up to 41 percent of their gross income toward paying mortgage debt – well above the ratio allowed under most private programs.

Mortgage Revenue Bonds and Mortgage Credit Certificates: Mortgages funded with these instruments typically require a minimum of 5 percent down and have interest rates that are 1.5 to 2 percentage points below conventional 30-year fixed rates. These types of loans, offered by state and local housing agencies, are available only to first-time homebuyers. There generally are income and purchase price caps that vary, depending on where you plan to buy.

Department of Veterans Affairs (VA): VA mortgages allow veteran or active service personnel purchase home with no down payment, up to the current maximum price of $184.000. However, there is no purchase price limitation for buyers able to make a down payment. Like the FHA program, VA borrowers can put up to 41 percent of gross income toward their mortgage debt.

Clearly, there are a lot of options for first-time homebuyers. While lenders will be more than happy to share information about their own programs, you can save yourself a good deal of time by first selecting a professional loan officer who is experienced in working with first-time buyers in the areas where you plan to buy. An agent who focuses on first-time buyers will know from experience which lenders in your area offer a low down payment program that will meet your unique needs. Today, taking the first step toward owning your own home is easier than before. Your real estate agent is your best resource for finding innovative ways to help you come up with a down payment and qualify for financing. There’s certainly no need to wait until you’ve saved a 20 percent down payment!

Piggyback mortgage strategies incorporating up to 80% first mortgage and up to an additional 45% in the form of a second mortgage or equity line of credit can allow borrowers with all types of credit to own a home with no money down.

In the case of many of today’s lenders, there may not be any down payment required. Lenders are constantly looking at making more and more programs available to people looking to purchase a new home. Lenders are willing to do 100% loans, with a credit score of 560 or better. This may not be the best option, that is why it is best to know that there are several low down payment programs, that may also be available to you.

In addition there are down payment assistance programs that can help with thousands of dollars for down payment and closing cost. Most cities have grant programs available that don’t have to be paid back.

Community Homebuyer Program: Through their networks of mortgage lenders, the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac) offer Community Homebuyer Program loans. These programs require a 5 percent down payment, 3 percent of which may be a gift. To further help buyers qualify, applicants may use 38 percent of their gross income. Currently, the maximum loan amount available through these programs is $203,150.

Editors Note: Due to the mortgage and credit crunch, First time home buyer mortgages may be harder to obtain. If you’re in need of a Denver FHA Mortgage contact us to discuss your mortgage options.

Many people dream of owning a home but the home loan process can be confusing for many first time home buyers. Mortgage lenders offer first time buyers with many home loan options and assist the buyer in finding the best home loan for them. First time home buyer programs can offer lower interest rates, low down payments, or reduced taxes.

If you’re a first time home buyer and need help paying closing costs, consider a loan that allows you to roll your closing costs into the loan amount. 103% - allows 3% of the purchase price to be rolled into the loan. 107% - allows 7% of the purchase price to be rolled into the loan.

Many lenders and insurance companies offer a First Time Home Buyers Education course that is free. Some first time home owner loan programs require you to take this course. The company that offers the course will often issue a certificate once the course has been completed.

Be sure to get pre-qualified by your mortgage professional so that you will know how much you can afford to spend on a home. There are many different first home buyer loan programs available. It’s important to consider all aspects of the program, not just the amount of the down payment, to ensure that it will be the best one for you both initially and over the next several years.

If you have not owned a home in 3 years you are considered a first time homebuyer and can be eligible for first time homebuyer programs.

Some of the programs require you to be a true first time home buyer. This means that you have never had any interest in any real property, ever, compared to some other programs that simply require a three year window with no ownership.

Many states and local counties offer down payment assistance programs to First Time Home Buyers. To qualify, most such programs require that the FTHB’s incomes be within a certain limit. There may also be limits on the property locations and project developments. These programs also have measures in place so assistance recipients cannot profit from selling the homes or refinancing the mortgages to cash in the equities built in the homes within a specified period of time.

Fannie Mae and Freddie Mac both have 100% first time home buyer programs. You may have to pay Private Mortgage Insurance (PMI) There are alternatives to paying PMI, ask you mortgage broker for more information.

With an abundance of no and low down payment loan programs along with loan programs that allow seller contributions toward closing costs, the climate as never been easier for the first time home buyer.

If you are a first time home buyer, please speak with a loan officer and your realtor or seller about seller’s concessions which may help cover closing costs in a no money down or 100% financing scenario.

Ask your mortgage broker about what first time home buyer programs that are available to you. You might even qualify for a down payment assistance program. There are several down payment assistance programs that may be able to grant you the money for your down payment. The grant must be agreed upon by both the seller and buyer, and must be in the offer to purchase. The grant money does not need to be paid back, and could help you qualify for your first home!

Some of the first time home buyer programs can be used with multiple down payment assistance programs on the local and state level as well.

There are some differences in Buyer’s Assistance programs though. Some programs will actually put a lien on the property for a certain period of time. As long as you own the home for that time period the lien will be released and won’t have to be paid back. You might want to ask about the program if you are looking at this option to determine if it will fit into your needs.

Many first time home buyers purchase property with no money down.

In 2005 43% of first time home buyers used 100% financing. That’s right! No money down! Those buyers only had to pay their closing costs.

Being a first time homebuyer can be a scary yet exciting time for a family. Along with the freedom and pleasure of owning your own home come many responsibilities. You will now have to pay property taxes, homeowners insurance, maintain the upkeep you your lawn, landscaping and exterior of your house, be prepared for inside home maintenance and take care of old worn out appliances in your home. When you furnace goes in the middle of winter there will be no landlord to call to come over immediately and have it fixed or replaced. However the rewards of owning your own home tremendously overshadow these minor responsibilities. Being a homeowner allows you to have the freedom you have always desired to have with YOUR OWN HOME. This home will belong to you and is yours to do with as you please. No more rules from parents or family members, no more landlord restrictions, no more neighbors that live above you and below you as in the apartment you just moved out of and no more having to be quiet as a mouse so that you will not disturb your neighbors through the paper thin walls in your apartment building. You make your own rules now. Being a homeowner gives you tax advantages during income tax time, it provides you with an investment of your money, and it provides you with a place to grow memories for yourself and your family. A good mortgage professional can help you understand what to expect during your first years of homeownership and will walk you through step by step of the mortgage process so that you understand what is going on throughout the processing of your home loan application. Find a mortgage professional that comes highly recommended from a family member or friend, or make sure you find someone you can TRUST when you are looking to buy your first home. This will truly make a big difference.

There are many programs for purchasing a new home with no money down. Perfect credit is not required and in most cases closing cost up to 6% of the loan amount can be financed into the loan.

Not only can you acquire 100% purchase which entails no down payment money, but a good real estate professional can also get the seller to pay closing cost. Which means no money out of pocket at all.

Find a good loan professional in your area to give you an overview of the process and also get pre approved so that you know what price of home you can purchase.

Using a real estate broker is a very good idea. All the details involved in home buying, particularly the financial ones, can be mind-boggling. A good real estate professional can guide you through the entire process and make the experience much easier. A real estate broker will be well-acquainted with all the important things you’ll want to know about a neighborhood you may be considering…the quality of schools, the number of children in the area, the safety of the neighborhood, traffic volume, and more.

Your mortgage broker can recommend a realtor in your area that specifically works with first time buyers. They will be more sensitive to 1st time buyers needs as well as their constraints.

With the many 100% financing mortgage programs available today you may not need to use a down payment assistance program if you have fair credit. Ask your mortgage broker the pros and cons of each scenario.

Federal National Mortgage Association (FNMA); a federally-chartered enterprise owned by private stockholders that purchases residential mortgages and converts them into securities for sale to investors; by purchasing mortgages, Fannie Mae supplies funds that lenders may loan to potential homebuyers.

Generally speaking, mortgage loans products than are sold to Fannie Mae will have the most attractive interest rates on the market. Also, the conforming loans (Fannie Mae products) do not normally have pre payment penalties.

Fannie Mae is apart of what are known as Government Sponsored Entities (GSE’s). Though government sponsored, are not government owned, just as the Federal Reserve is a privately owned but government sponsored corporation. Fannie Mae is responsible for over half of the conforming loan purchasing and investing in the nation and is largest real estate asset holding company in the nation. While Fannie Mae is an integral part of real estate loans in the nation, they still have their limitations of what they feel comfortable investing on for Wall Street. Because GSE’s like Fannie Mae are so influential to real estate financing, loans they will not buy are called non-conforming, or subprime mortgages.

All loans that are sold to Fannie Mae are underwritten according to Fannie Mae’s rules and guidelines. More information about Fannie Mae and their underwriting guidelines can be found on their website, simply type Fannie Mae into any search engine to find their site.

To sum it all up; Fannie Mae buys the mortgages on the secondary market, sells those mortgages in the form of securities to investors, which allows lenders to continue loaning money over and over again.

Since Fannie Mae is one of the two (the other being Federal Home Loan Mortgage Corporation, or FHLMC, also referred to as Freddie Mac) largest purchasers of mortgage loans in the secondary mortgage market, it’s underwriting and product guidelines are widely accepted in the mortgage loan industry. Even in the world of non-conforming loans (loans that are not eligible to be sold to FNMA/FHLMC, usually due to the loan amount being larger than that allowed by FNMA/FHLMC), its underwriting criteria are still closely followed.

Mortgage loans that are eligible to be sold to FNMA are called conforming loans. Because lender banks can resell these loans to FNMA and recoup their investments immediately after closing, rather than having to wait 30 years to recover their investments, lenders are able to offer lower interest rates for conforming loan products. In addition, since every financial institution, regardless of its financial strength, can sell conforming loans to FNMA and immediately recoup its investments, smaller lenders with limited capital are able to compete with large international banks in offering loans in the primary market, thereby giving conforming loan borrowers even more competitive rates. Non-conforming loan products carry higher interest rates because banks cannot sell these loans to Fannie Mae and must sell to smaller investors or keep in their own investment portfolios for the length of the loan terms. Therefore, Fannie Mae plays an important role in every mortgagor’s loan transaction.

Because Fannie Mae was formed with the sole purpose of promoting homeownership in the United States by creating a healthy supply of mortgage funds, all of its underwriting guidelines are designed to benefit the average homeowners, and to keep the wealthy and the commercial sector from taking advantage of its functions. Amongst its many criteria, FNMA stipulates that the property must be for residential use. It also dictates the maximum loan amounts allowed. Other criteria that has to be met include percent of down payment in relation to purchase price, borrower’s capability to repay loan, cash reserves, the type of eligible properties, borrower’s credit worthiness, and other aspects of the loan file.

Started by Congress to help keep the secondary mortgage market going. As a tax-paying corporation, it insures mortgage money is available. They also buy and/or sell conventional residential mortgages, in addition to VA-guaranteed and FHA-insured mortgages.

Fannie Mae is also credited with developing two automated underwriting engines that revolutionized the underwriting process of conforming loans. Desktop Underwriter (DU) and Desktop Originator (DO) computerized the loan risk assessment process and are used by every conforming lender in the primary market.

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