The Freddie Mac Home Loan Advantage
Freddie Mac, also known as the Federal Home Loan Mortgage Corporation (FHLMC), is a government-sponsored enterprise (GSE) that Congress created in 1970 (Emergency Finance Act) to provide liquidity, stability, and affordability to the U.S. housing market. Like Fannie Mae, Freddie Mac purchases mortgages from home loan lenders and securitizes them, which means that it pools the mortgages together and sells them as securities, called Mortgage Backes Securities, to investors.
The Origins Of Freddie Mac
The origins of Freddie Mac stem from the shortage of mortgage financing that occurred in the 1960s, when some traditional sources of mortgage financing, such as savings and loans and insurance companies, could not keep up with the growing demand for home loans. As a result, Congress established Freddie Mac as a way to increase the availability of mortgage financing and to provide stability to the housing market via the Emergency Home Finance Act of 1970.1
Over the years, they have played a vital role in the U.S. housing market by providing liquidity, stability, and affordability by purchasing mortgages. They have developed unique mortgage products and initiatives to help make home ownership more accessible to a broader range of borrowers.
Each year, a significant number of Freddie Mac home loans are originated through a network of approved home loan lenders. In 2022, Freddie Mac provided $614 billion in liquidity to the mortgage market, helping to provide financing to millions of homeowners across the country.2 In 2021, Freddie Mac provided $1.3 trillion in liquidity to the mortgage market.3
Freddie Mac Home Loan Products
Beyond the traditional fixed and adjustable rate mortgages are specific loan products designed to provide a unique solution to a home financing problem. I will focus on the most popular, specialized loan products Freddie Mac offers that are most actively used in the industry. Below are the top ten Freddie Mac specialized home loan products in the mortgage industry. 4
- HeritageOne Mortgage
- CHOICEHome Mortgage
- CHOICEReno eXPress
- CHOICERenovation Home Loan
- GreenCHOICE Energy Efficiency
- Home Possible
- Enhanced Relief Refinance
- HomeOne Mortgage
- Refi Possible
- Relief Refinance Hardship
HeritageOne Mortgage For Native Americans
Freddie Mac’s HeritageOne mortgage is a loan program for Native Americans living in tribal areas. The program allows for special financing for different types of land ownership interest, such as tribal trust land, that would normally be excluded from traditional financing through Freddie Mac (FHLMC) loan programs.
According to FHLMC, here are the key borrower benefits of the HeritageOne Mortgage program.
- Gain more home financing options.
- Attain homeownership with a conventional mortgage solution.
- Use funds from a variety of sources for the down payment, reserves and closing costs.
- Receive a credit to offset any appraisal costs.
- Make a down payment as low as 3% of the home’s sale price.
- Access homeownership education programs.
- Not subject to income limits to be eligible for HeritageOne.
CHOICEHome Mortgage Program
Freddie Mac’s CHOICEHome mortgage program helps homebuyers purchase a factory-built home. If someone owns a factory-built home, the homeowner can refinance their current mortgage under the program (provided the factory-built home is built to the program’s standards).
Here are the basic underwriting guidelines for the CHOICEHome Mortgage.
- Factory-built, HUD-code home
- Primary residence
- Fixed and adjustable rates
- Purchase and no-cash out refinances allowed
- 95% LTV
- 97% LTV, 105% TLTV with an affordable second
The CHOICEHome mortgage program provides a viable option for homebuyers who purchase a factory-built home or refinance a mortgage attached to a factory-built home.
CHOICERenovation Home Loan
The CHOICERenovation Mortgage program gives borrowers a loan option to purchase and renovate a home. It offers a single loan with a single closing that covers both the purchase price of the home and the renovation costs, allowing borrowers to finance the entire project with a single mortgage.
Freddie Mac introduced the CHOICERenovation Mortgage program in 2017 to provide borrowers with an efficient and cost-effective way to finance the purchase and renovation of a home. It offers a range of mortgage options, including fixed-rate and adjustable-rate mortgages (ARMs), with down payment requirements as low as 3% for some borrowers.
CHOICEReno eXPress Renovation Loan
The CHOICEReno eXPress mortgage program is a renovation program designed to help homeowners finance “smaller-scale home renovations.” It offers a streamlined financing process and is designed to make it easier and more affordable for homeowners to make basic improvements to their homes.
Here are the basic underwriting guidelines for the CHOICReno eXPress renovation loan.
- One to four units, primary residences
- One-unit secondary homes
- One-unit investment property
- First-time homebuyers allowed
- Fixed and adjustable rates
- Purchase and no-cash out refinances allowed
- 95% LTV
- 97% LTV, 105% TLTV with an affordable second
GreenCHOICE Energy Efficiency Program
Freddie Mac’s GreenCHOICE mortgage program is a specialized solution focused on energy-efficient home improvements and the use of renewable energy sources. It is offered through a partnership between Freddie Mac and participating lenders and is available to borrowers who are purchasing or refinancing a home.
One of the main features of the GreenCHOICE mortgage program is its ability to help homeowners finance energy-efficient improvements to their homes. These improvements can include things like energy-efficient appliances, HVAC systems, and lighting, as well as more comprehensive upgrades like solar panel installations or home insulation upgrades.
The GreenCHOICE mortgage program provides financing options for these types of improvements, which can help homeowners reduce their energy usage and lower their monthly utility bills.
Per Freddie Mac, here are the improvements or efficiencies that can be made.
- Programmable thermostats.
- Caulking or weather stripping.
- Adding ceiling, wall or floor insulation.
- Air sealing.
- Air conditioning/heating replacement to high efficiency.
- Solar water heaters.
- Low-flow water fixtures.
- High efficient refrigerators/freezers, water heaters and light bulbs.
- Replacement of windows and doors.
In addition to financing energy-efficient improvements, the GreenCHOICE mortgage program also offers incentives for homeowners who use renewable energy sources. For example, borrowers who install solar panels or other renewable energy systems may be eligible for reduced mortgage rates or other benefits. This can make it more affordable for homeowners to make the switch to renewable energy sources, which can help reduce their carbon footprint and contribute to a cleaner environment.
Details About The Home Possible Program
Freddie Mac’s unique Home Possible program helps very low to low-income borrowers obtain financing to purchase a home. It offers a range of low-down payment and closing cost options and is designed to promote home ownership in low and moderate-income communities.
Here are some of the main Home Possible underwriting requirements.
- 3% down (or more)
- Standard residential property types (SFR, Condo, etc)
- Owner occupation required
- Non-occupying borrowers are allowed
- Purchase and no-cash out refinances are allowed
The program uses an income standard called “Area Median Income” or AMI. A borrower’s qualifying income is limited to 80% of the AMI.
Enhanced Relief Refinance Mortgage Program
Freddie Mac’s Enhanced Relief Refinance Mortgage provides a unique solution to homeowners who have a Freddie Mac mortgage and are ineligible for a traditional no-cash out refinance with Freddie Mac due to their loan-to-value ratio being higher than the underwriting requirements.
Here are some of the main Enhanced Relief Refinance guidelines.
- No maximum loan-to-value ratio for fixed-rate loan option
- All occupancy types accepted
- One to four-unit properties accepted
This program allows these homeowners to refinance their home loan and take advantage of lower interest rates. It offers a streamlined refinance process and reduced fees for eligible borrowers. The Enhanced Relief Refinance Mortgage program was introduced by Freddie Mac in 2018.
HomeOne Mortgage Program For First-Time Homebuyers
Freddie Mac’s HomeOne mortgage program is a great solution for first-time homebuyers. It offers a range of low down payment and closing cost options and is designed to promote home ownership.
Freddie Mac launched the HomeOne mortgage program in 2018 to increase access to mortgage financing for first-time homebuyers and low- and moderate-income borrowers.5 The program allows for fixed-rate and adjustable-rate mortgages (ARMs), with down payment requirements as low as 3% for some borrowers.
Refi Possible Program For Low – Moderate Income Borrowers
Freddie Mac’s Refi Possible mortgage program is a focused loan solution designed to help low to moderate-income homeowners refinance their existing mortgage into a more affordable loan. Homeowners who meet the eligibility requirements can access the program to lower their interest rate and monthly payments. According to Freddie Mac, this will help low-moderate income homeowners “achieve greater housing stability and build generational wealth.”
The Refi Possible program requires a borrower’s income by less than or equal to 100% of the Areas Median Income (AMI). The program requires
Enhanced Relief Refinance
The Enhanced Relief Refinance mortgage program allows existing Freddie Mac borrowers who owe more than their home is worth the ability to refinance their current mortgage into a new lower-rate mortgage.
The homeowner must make on-time payments before the refinance, and it has to be a no-cash out refinance. The program started in November 2018 and has helped thousands of homeowners refinance at a lower rate even though they owed more than the home’s current value.
Both fixed and adjustable rates are allowed under the program, and one to four-unit properties.
What Is A Freddie Mac Conforming Loans?
A Freddie Mac conforming loan adheres to Freddie Mac’s underwriting guidelines and loan limit standards set by the Federal Housing Finance Agency. Freddie Mac’s underwriting guidelines include baseline standards for the following;
- Credit score
- Loan-to-value ratio
- Employment history
- Debt-to-income ratio
- Property type and use
Freddie Mac’s conforming loans follow the same loan limits as Fannie Mae. Each year, the Federal Housing Finance Agency sets the conforming loan limits for both of these Government-Sponsored Enterprises (GSE).
What Is Freddie Mac’s Loan Product Advisor?
Loan Product Advisor (LPA) is an automated underwriting system (AUS) that evaluates a loan applicant’s risk profile and creditworthiness. Mortgage underwriters use it to approve or decline loan applications based on the guidelines they must follow.
The software allows underwriters to quickly evaluate and approve loan applications that meet Freddie Mac’s underwriting loan standards.
LPA requires the underwriter to properly input a loan applicant’s specific data points, including personal information, employment history, income, credit history, and more. An underwriter obtains this information from the loan application and various documentation provided by the homebuyer or homeowner if it’s a refinance.
Freddie Mac Vs. Fannie Mae?
There are more similarities than differences when comparing Freddie Mac and Fannie Mae. Both are Government-Sponsored Enterprises, and both organizations provide conventional home loans and adhere to the loan limits set by the Federal Housing Finance Agency. They also have similar underwriting standards.
In addition, they both use an Automated Underwriting System to evaluate credit risk, provide loan product standards for mortgage companies, and then buy the loans these companies issue to add liquidity to the housing market.
So what is the difference? The Key difference between the two is that Freddie Mac generally buys loans from smaller banks and lending institutions, and Fannie Mac generally buys loans from larger banks and lending institutions.6
Historical Timeline For Freddie Mac
Here is a historical time for Freddie Mac.
1970: Congress creates Freddie Mac as the Federal Home Loan Mortgage Corporation (FHLMC) to provide liquidity, stability, and affordability to the U.S. housing market by purchasing mortgages from lenders and securitizing them.
1971: Freddie Mac begins purchasing mortgages from lenders and securitizing them, providing a new source of financing for the housing market.
1981: They start to offer adjustable-rate mortgages (ARMs) in addition to fixed-rate mortgages, providing borrowers with more flexibility in terms of loan terms.
2008: Freddie Mac, along with Fannie Mae, is placed under the conservatorship of the Federal Housing Finance Agency (FHFA) due to financial difficulties related to the subprime mortgage crisis.
2013: The Home Possible mortgage program is launched, which offers low down payment and closing cost options to first-time homebuyers and low- and moderate-income borrowers.
2019: Freddie Mac is released from conservatorship and becomes a shareholder-owned company again.
2020: The fifty-year milestone is reached. $10.9 trillion in single-family loan funding since 1970 and $691.1 billion in total multifamily loan funding.
2022: Freddie Mac announces it will transition away from LIBOR to an index based on SOFR.
2023: They announce DPA One® mortgage tool that aggregates and showcases down payment assistance programs to better educate homebuyers about their local options.
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Freddie Mac’s Impact On The U.S. Housing Market
Freddie Mac has played a significant role in the U.S. housing market over the years by providing liquidity, stability, and affordability to the market through the purchase of mortgages and the development of innovative mortgage products and initiatives.
Every year, Freddie Mac enables home loan lenders nationwide to fund billions of home loans. Millions of Americans can refinance a current mortgage or purchase a new home because of Freddie Mac. Their impact on the U.S. housing market may not be as significant as Fannie Mae’s. However, its role in ensuring Americans have access to the home loan market is vital to the industry.