Who Is Responsible for the Oversight of Home Loans?

Fannie Mae and Freddie Mac create the oversight guidelines for many conventional mortgage loans.

While many parties appear to be in charge of America's home loans, the authority lies with the U.S. Government for most home loans. Ultimately it comes down to who actually owns or insures the loan, and the program guidelines the loan was originated under. Brokers originate and sell to lenders. Lenders then may sell the loan to other larger lenders (usually banks). Banks sell the loan to an investor (Fannie Mae, Freddie Mac, Sallie Mae or a real estate hedge fund) but keep the servicing (receive payments, customer service, escrow account management) rights to the loan for a fee.

Fannie Mae

In 1938, Congress created Fannie Mae, the largest investor in conventional loans in America. Initially, it was part of the U.S. government, designated to bring liquidity to the housing market. In 1968, Fannie Mae went from being a government agency to being a government-sponsored entity. This allowed Fannie Mae to issue stock for investors and create mortgage-backed securities (MBS) which it sold to investors.

Freddie Mac

In 1970, Congress chartered Freddie Mac to partner with Fannie Mae as a second conventional-loan investor. Freddie Mac's charter specifically laid out its mission to create stability, affordability and liquidity in the mortgage marketplace. Freddie Mac is the nation's second-largest, government-backed mortgage investor behind Fannie Mae. Together they create the oversight guidelines for conventional loans.

FHA

FHA (Federal Housing Authority) was created by Congress in 1934, as part of HUD (U.S. Department of Housing and Urban Development), in reaction to the Great Depression. FHA does not own mortgage loans; it only insures the lenders who meet its guidelines against loss when a foreclosure occurs. Unlike Fannie Mae or Freddie Mac, FHA is part of the American government, and not a semi-private agency.

VA

America's veterans and their surviving spouses have access to Veterans Administration (VA) loans as a benefit of service. These loans provide over 100 percent financing without any monthly mortgage insurance. VA guarantees the lenders against loss in the event of a foreclosure in exchange for a funding fee from the homeowner at the time of closing. Ultimately, VA is also a part of HUD like FHA, but is not available to everyone in the lending public.

HUD and FHFA

FHA and VA answer to HUD for regulation purposes. When a home forecloses under one of these programs, HUD takes ownership of the home and sells it. HUD constantly monitors FHA and VA guidelines to ensure liquidity of the programs and charters them to help in financially difficult times. In September 2008, the Federal Housing Finance Agency (FHFA) took conservatorship of Fannie Mae and Freddie Mac. This agency oversees the two conventional mortgage investors, and is charged with ensuring they meet their charter while remaining profitable.

References

• Fannie Mae: About Fannie Mae
• Federal Housing Finance Agency: About FHFA
• The Federal Housing Administration