Conventional Loans
Conventional Loans
Have you heard talk about “conventional loans” but you don’t know what those are?
Fannie Mae and Freddie Mac are the 2 companies who are the source of all conventional loans.
These are the “Main Street” kind of loan – they are very basic in structure and are often considered to be the best loan for most people.
They set the standard for all other loans in the industry.
What does Fannie Mae and Freddie Mac do?
When you get a mortgage, the lender will probably sell that loan to Fannie Mae or Freddie Mac.
That way, the lender gets their loan money back and they can lend it to someone else.
Without Fannie Mae or Freddie Mac, banks would run out of money quickly.
New people would not be able to get a mortgage to buy a home.
Fannie Mae and Freddie Mac will in turn use these mortgages to create a big mutual fund (named a “mortgage-backed security”), and sell pieces of it to Wall Street investors.
This insures there is a constant source of money available for mortgages.
Some people want to eliminate Fannie Mae and Freddie Mac, but that would be a bad move in my opinion.
They serve a vital role in lending.
