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Fannie, Freddie, Portfolio Lending

What's the difference?

Editor’s Note: The following post originally appeared in AZ Central. 

If you’re in the market for a new home, you’ve probably heard of Fannie Mae and Freddie Mac -but you may not know what they have to do with you as a potential homeowner.

Photo of mortgage paperwork


After all, you’re not getting your home loan through them or receiving mail from them. But someday, one of these two entities might very well own your mortgage.

The Federal National Mortgage Association (known as Fannie Mae) and The Federal Home Loan Mortgage Corporation (known as Freddie Mac) are U.S. government-sponsored entities established with the purpose to expand secondary mortgage markets, explained Melissa Donahue, senior mortgage consultant with OnQ Financial in Scottsdale.

What's the secondary mortgage market?

It’s where home loans are bought and sold between lenders like banks and credit unions and investors on Wall Street. Typically, there is an intermediary between lenders and investors — usually Fannie Mae or Freddie Mac.

Will your loan be sold?

Most home loans in the U.S. are ultimately sold to Fannie Mae or Freddie Mac, which will then package them into what are called mortgage-backed securities. “By guaranteeing and purchasing these loans, Fannie and Freddie provide banks and other financial institutions with money to continue to make new loans,” Donahue said.

If you secure your mortgage through a mid-size or smaller financial institution, you may have selected what’s called a “portfolio lender” that—unlike a big bank — will probably keep your loan throughout its term instead of selling it to the secondary market.

That’s according to Paris Davis, senior vice president and Northwest Arizona Retail Division Manager of WaFd Bank in Scottsdale, a portfolio lender that does not sell the mortgages it approves for customers. With portfolio lending, “the loan is kept on the lender’s balance sheet for the life of the loan,” Davis said.

Fannie Mae and Freddie Mac both buy traditional conventional loans, said Casey Taylor, a licensed real estate agent and mortgage broker affiliated with Wilde Wealth Management Group in Scottsdale. These are loans that are typically 15- or 30-year loans, including adjustable-rate mortgages, he said.

Similar, but with functional differences.

Fannie Mae and Freddie Mac are considered siblings in the lending world, Donahue said.

“However, they do vary on some lending guidelines,” she added. “It’s very important that your lender is well-versed on the different guidelines and can do both Fannie Mae and Freddie Mac loans. In many cases, a borrower may not qualify for a Fannie Mae loan but can qualify for a Freddie Mac loan and vice versa. If you’re trying to get pre-qualified for a mortgage loan and the loan officer says you don’t qualify for a conventional loan, ask this question: ‘Does this mean I don’t qualify for a loan with Fannie Mae or Freddie Mac and why?'"

Photo of mortgage paperwork II

Fannie Mae is known to purchase loans that originated with large commercial banks such as Wells Fargo, Bank of America or Chase, Taylor said. Freddie Mac also purchases from these sources, but is known to purchase from smaller banks and other lending institutions as well, such as wholesale mortgage lenders. “While both are very similar in their overall business models, they have some functional differences that allow them to compete and provide alternatives to borrowers,” Taylor said.

Ready to make a move?


We’re proud to be a portfolio lender. If you’re looking for a place to call home, ask us how a WaFd Bank mortgage could help. Because we don’t sell our loans, we’re able to provide borrowers with more flexibility and personal service – plus you’ll always know who to call if questions arise about your loan!

Contact your local branch today to find out more.

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