Guest Author - Katie Murphy

If you knew Freddie like I know Freddie…sorry, wrong name, but right idea.

You don’t have to be an economist to understand home mortgages, but you should know Freddie, Fannie and “The Fed”. You should also know there are two different markets: the primary market and the secondary markets.

The primary market is where homeowners get their mortgages. If you go to a bank or a mortgage broker for a loan, you are obtaining it through the primary market. The secondary market consists of the organizations that buy mortgages from banks and lenders and sell them off. This is the process that replenishes money, so homebuyers will continue to have a source of money to obtain mortgages.

The three names you should know related to mortgages are Freddie Mac, Fannie Mae and the Federal Reserve, also known as “The Fed”. You don’t necessarily need to know how the system works to get a fair deal on a mortgage, but knowledge is power and the more you know about the system, the better chance you have of obtaining the best loan at the best rate; thereby saving you a boat load of money over the life of the loan.

FEDERAL RESERVE

The Federal Reserve System, which is the nation's central bank, was created by an act of Congress in 1913. The System consists of a Board of Governors with headquarters in Washington, D.C., and twelve Reserve Banks located in major cities throughout the United States. The primary responsibility of the Board is the formulation of monetary policy. The Board sets reserve requirements and shares the responsibility with the Reserve Banks for discount rate policy.
FANNIE MAE
In 1938, the Federal government established Fannie Mae to expand the flow of mortgage money by creating a secondary market. In 1968, Fannie Mae became a private company operating with private capital on a self-sustaining basis. Its role was expanded to buy mortgages beyond traditional government loan limits, reaching out to a broader cross-section of Americans.

Fannie Mae operates under a congressional charter charged with increasing the availability and affordability of homeownership for low-, moderate-, and middle-income Americans.

FREDDIE MAC

Freddie Mac is a stockholder-owned corporation chartered by Congress in 1970 to keep money flowing to mortgage lenders in support of homeownership and rental housing. Freddie Mac is not a government agency.

Freddie Mac buys mortgages from lenders, packages the mortgages into securities and sells securities to investors. Mortgage lenders use the proceeds from selling loans to Freddie Mac to fund new mortgages, constantly replenishing the pool of funds available for lending to homebuyers and apartment owners. The secondary mortgage market puts private investor capital to work for homebuyers and apartment owners, providing a continuous flow of affordable funds for home financing.
The secondary market process is invisible to borrowers and renters. But because Freddie Mac exists, millions of Americans have benefited from lower monthly mortgage payments and better access to home financing.
This week Freddie Mac announced housing starts for January showed “the weakest reading since August 1997 due to the abundance of homes on the market”. This caused the Federal Reserve to reduce mortgage rates a bit due to concern of the negative impact of the housing market on the economy. This is an example of how The Feds control the economy by increasing or decreasing the flow of money available for mortgages by increasing or decreasing the interest rate. As interest rates go down, more people buy houses. As they go up, less people buy houses. Pretty simple, right?

Thirty year fixed-rate mortgages declined this week to an average of 6.22 percent, down from 6.30 percent last week and 6.26 percent a year earlier, Freddie Mac reports. 15-year fixed-rate mortgages averaged 5.97 percent, down 6.03 percent last week and 5.89 percent a year ago.

Now that you know a little bit about primary and secondary markets and you’re acquainted with The Fed, Freddie and Fannie, you are prepared to seek out the current information you will need when making decisions regarding financing a home, which by the way, is the biggest financial decision in most of our lives.
There are plenty of reliable websites to go to in order to find out the most current information on mortgage rates.

To obtain the most up-to-date information on mortgage rates visit www.BankRate.com. For information on mortgage rate trends, go to the Federal Reserve website at www.federalreserve.gov. For information on mortgages in general you can visit my website at www.ktmurphyrealtor.com