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Freddie Mac's purpose was to expand the secondary mortgage market and particularly to provide competition to Fannie Mae, which had come to dominate the market and had become a private shareholder ...
There are 2 AUS systems, and algorithms designed for this purpose, the first one Desktop Underwriting (DU) is designed by Fannie Mae and Loan Prospector (LP) by Freddie Mac. Some lenders still manually underwrite [1] the loan if the borrower doesn't pass the AUS but has additional compensating factors to be able to obtain the loan.
This is because both Fannie Mae and Freddie Mac only buy loans that are conforming, to repackage into the secondary market, making the demand for a non-conforming loan much less. By virtue of the laws of supply and demand, then, it is harder for lenders to sell the loans, thus it would cost more to the consumers (typically 1/4 to 1/2 of a percent.)
In 2008, the Federal Housing Finance Agency put Fannie Mae and Freddie Mac into conservatorship. At the time, the two owned or guaranteed nearly 57% of the $12 trillion U.S. mortgage market.
"Over the past decade Fannie Mae and Freddie Mac have reduced required down payments on loans that they purchase in the secondary market. Those requirements have declined from 10% to 5% to 3% and in the past few months Fannie Mae announced that it would follow Freddie Mac's recent move into the 0% down payment mortgage market." [153]
Fannie Mae and Freddie Mac support about 70 percent of the mortgage market and are two of the biggest purchasers in the secondary mortgage market, according to the National Association of Realtors.
That is, Freddie Mac guarantees that the principal and interest on the underlying loan will be paid back regardless of whether the borrower actually repays. Owing to Freddie Mac's financial guarantee, these MBS are particularly attractive to investors and, like other Agency MBS, are eligible to be traded in the "to-be-announced", or "TBA" market.
As of 2023, Fannie Mae and Freddie Mac support around 70 percent of the mortgage market, according to the National Association of Realtors. That means the majority of conventional loans, those ...