Fannie Mae and Freddie Mac Commercial Mortgages

by A. Heinrich

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The Federal National Mortgage Association, or Fannie Mae and the Federal Home Loan Mortgage Corporation, or Freddie Mac are both government-sponsored companies, whose primary purpose is to promote home ownership by low- to middle-income families by providing a continuous flow of capital to the various companies that originate mortgages. In short, both companies define a set of loan programs?property type, loan purpose, loan terms, etc. Approved banks, life insurance companies, credit unions, and other loan originators make loans that align with these programs, and then sell those loans to Fannie Mae or Freddie Mac. The funds from the sale are then available to make more mortgages. Fannie Mae and Freddie Mac then pool the loans they purchase and sell them as mortgage backed securities, a certain type of security investment for which mortgages serve as the collateral.

Both companies participate in the commercial mortgage lending market through their involvement in mortgages on multifamily properties.

Fannie Mae was created in 1938 as a governmental agency. In 1968 the agency was split into Ginnie Mae and a revised version of Fannie Mae, which would become a private corporation while retaining its government sponsorship. Fannie Mae's original charter provided for the agency to purchase only loans that were insured against default by the FHA, and this stipulation continues.

Fannie Mae defines the following programs for multifamily commercial properties:

• Standard DUS Mortgage ? Designed primarily for "conventional market-rate apartments", this is the "vanilla" Fannie Mae multifamily product. "DUS" stands for "delegated underwriting and servicing", and refers to the program through which Fannie Mae approves lenders to originate and service the loans it purchases.
• DUS Plus - Mezzanine financing combined with a standard DUS mortgage
• Fixed +1 - Alternative rate and term options
• Choice Refinance - Obviously, designed for refinance of DUS mortgages
• 3MaxExpress - For loans under $3 million
• Manufactured Housing Community
• Dedicated Student Housing
• Seniors Housing

Freddie Mac is similar in most aspects of its operation to Fannie Mae?it is government-sponsored, it purchases loans in order to sell them on the secondary market, etc. The main difference is that Freddie Mac was designed to purchase "conventional" mortgages, i.e. mortgages not insured by the FHA. Like Fannie Mae, Freddie Mac "provides a full range of competitively priced, reliable mortgage products for the acquisition, refinance or moderate rehabilitation of multifamily communities" (http://www.freddiemac.com/multifamily/product.htm).

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