Understanding FNMA Enhancements LetterWhether you are looking to buy a new property or refinance a home, your chief priority is centered on the best mortgage loan terms available. Being a heavily flooded market, successfully navigating the real estate market and landing the exact terms you are seeking can prove daunting. It is therefore imperative to kick-start your search from a place of understanding. What refinancing options do you have? Should you opt for a government-backed program or a non-government-backed program? How much do you know about government-backed programs? How do you detect scams in mortgage financing? These are all critical questions that you must thoroughly analyze before settling for any single refinancing option. Most borrowers take out their mortgage loans from non-government lenders but never really get to find out the role of the government in such loans. Yet, gaining insight on the same can potentially open you up to better or enhanced loan terms that you never knew existed. That’s precisely where the FNMA mortgage enhancements come in. You may or may not have bumped into the term FNMA in your mortgage or real estate engagements. You probably even know the significant role of FNMA in the housing market but don’t have a good grasp of how it operates. To successfully navigate the housing market as it is currently constituted, you must fully understand the mortgage options available to you. FNMA happens to be one of the most borrower-friendly providers of the different mortgage options available to you. Let’s find out how this entity can make your mortgage hunt more favorable.
What are fnma enhancements?You cannot talk about government-backed home refinancing programs without talking about FNMA. Also known as Federal National Mortgage Association or Fannie Mae, FNMA plays an integral role in the secondary mortgage market. That simply means that FNMA is not a mortgage issuer or lender in itself. Instead, it purchases mortgage loans directly from lenders originating them. That qualifies Fannie Mae as a government-sponsored enterprise (GSE) because as it buys these loans from small-scale lenders, it guarantees them for access by low-income borrowers. This is the two-fold effect of that transaction. As the FNMA buys the loans from lenders, it frees up their money allowing them to continue lending uninterrupted. On the other hand, more low-income and middle-income borrowers can keep on accessing funds with ease. FNMA has a cousin by the name Freddie Mac (Federal Home Loan Mortgage Corporation) and together, they purchase and sell mortgage loans as mortgage-backed securities (MBS) to investors the world over. Subsequently, this ensures more liquidity in the mortgage market to make loans readily available while ensuring housing remains affordable to all. Having understood what FNMA stands for and how it features in the real estate world, now let’s shift our focus to FNMA enhancements meaning. The term ‘enhancements’ in this context simply represents the positive impact or changes consistently implemented by Fannie Mae in the real estate landscape such as eligibility expansions to attract lower interest rates. In effect, therefore, FNMA mortgage enhancements do not only make your mortgage more affordable but also your refinancing journey more hassle-free.
What are the examples of FNMA enhancements?A striking aggressive enhancement touching on Fannie Mae’s eligibility involves the RefiNow program. To enhance this particular program, FNMA expanded its eligibility back in June 2021. The aim was to allow many homeowners (low-income borrowers) access to a lower interest rate and in turn, help them reduce their monthly mortgage payments. Important to remember is that each time Fannie Mae makes aggressive enhancements to its eligibility, that information always goes on their official website. On the same website, Fannie Mae will let you know whether you qualify for the enhancements and how you can take advantage of them.
What is the origin of FNMA?The Federal National Mortgage Association was birthed in 1938 as a GSE by Congress. At its founding, FNMA was tasked with providing adequate funding for the purposes of making housing more affordable in the United States. It has been operating as a publicly-traded company since 1968. Prior to its formation, a mortgage was extremely costly to the tune of requiring hefty down payments up to 50% plus. The lending terms were also unreasonably stringent by granting the lender more power over the borrower. One missed payment was enough to provoke the lender to repossess your precious home. Upon its founding, FNMA has greatly revolutionized the housing market. However, it has had its fair share of turbulence. When the stock market and real estate crash of 2008 struck, Fannie Mae was severely bruised. The selling of subprime loans by the mortgage giant resulted in massive defaults by borrowers causing the mortgage market to spin out of control. Consequently, these troubles brought Fannie Mae under government conservatorship. It was placed under Federal Housing Finance Agency (FHFA) in 2008. Later in 2010, FNMA was also expunged from the Chicago and New York stock exchanges. This new relationship with FHFA meant that Fannie Mae would receive circumstantial financial aid from FHFA in return for senior preferred stock. That means the federal government through the Treasury Department collects all the profits from the real estate giant. This enables the government to bail out FNMA if it runs into financial turmoil. Furthermore, a section of the directors in FNMA’s board is directly appointed by the US president. Thanks to the solid government backing, both Fannie Mae and Freddie Mac enjoy state and local tax-free status. This helps them to consistently keep their mortgage costs down for the low-income borrowers. If Fannie Mae were to go private, however, its tax exemption benefits would disappear threatening to push up mortgage costs. While this consequence may significantly disrupt the mortgage market, private investors would stand to gain a lot. Although delisted from public stock exchanges, Fannie Mae is still traded except on over-the-counter platforms as FNMA.
How does FNMA function?In any mortgage process, you will hardly miss FNMA’s footprint. What borrowers need to understand is that Fannie Mae does not originate any mortgage loans. That means you cannot obtain your mortgage directly from them. Nonetheless, FNMA remains an influential silent player in the entire process as they largely impact the mortgage type you receive and the interest rate you end up paying. Your mortgage application is handled directly by your lender (approved bank or non-bank mortgage lender) who underwrites your requested loan after verifying the property value, your assets, and income. If your mortgage loan successfully gets to the closing table, Fannie Mae then purchases all the qualifying loans from lenders. This leaves the lender with extra liquidity to advance more loans. For example, if a lending firm has \$50 million at its disposal to originate mortgage loans and the average mortgage is \$400,000, then this particular lender has the capacity to generate a maximum of 125 mortgage loans, i.e., \$50 million divided by \$400,000. In such a case, the 126th mortgage customer is essentially locked out as there are no more funds left to issue out more loans. For the 126th customer to succeed in getting a piece of the mortgage cake, Fannie Mae and the secondary mortgage market would have to step in. The lending firm in this example has just increased its assets by dishing out all the 125 mortgage loans. They can therefore decide to sell the loans to either Fannie Mae or Freddie Mac. If successful, the firm will receive more cash to continue lending to the locals including customer 126. On the other hand, Fannie Mae buys the loans from the lender and repackages them into mortgage-backed securities (MBS) before selling them to different investors in the bond market. This helps to keep the real estate market afloat. Typically, a single MBS may contain up to 1,000 mortgages or higher that share similar characteristics. The more liquidity generated in the mortgage market, the lower the mortgage rates across the country.
How does Fannie Mae buy mortgage loans?While Fannie Mae welcomes mortgage loans from different lenders, not every loan qualifies. For loans to be successfully resold by FNMA, they must pass as ‘safe investments’. That means the loans must satisfy certain requirements as stipulated by FHFA. These requirements or guidelines are referred to as conforming loan limits. Conforming loans are those conventional loans that fully comply with Federal Housing Finance Agency (FHFA) standards as issued to lenders. Every year the FHFA sets a new dollar limit as a threshold for qualifying conforming loans. These loan limits affect both Fannie Mae and Freddie Mac. For example, in 2022, the conforming loan limit was set at \$647,200 for a single-family home. Beyond that limit, you are entering ‘jumbo loan’ territory which Fannie Mae will not purchase. In such a case, a loan is considered a nonconforming loan. Other than what FHFA stipulates, Fannie Mae may set additional requirements for the loans it buys from lenders including a minimum down payment, minimum credit score, as well as a maximum debt-to-income ratio (DTI).
Why do borrowers get an FNMA enhancement letter?After the mortgage crisis of 2008, Fannie Mae has been increasingly modifying its loans. These modifications are usually geared toward altering the conditions of pre-existing loans to help borrowers steer clear of mortgage defaults. For example, the FNMA might reduce their interest rates or prolong loan terms to lower a borrower’s monthly payments. As the mortgage giant enhances its loan terms, it may dispatch enhancement letters to certain borrowers. That said, when you receive an enhancement letter from Fannie Mae, don’t use the contact information on the letter to seek clarification. Instead, head straight to the FNMA website and initiate your conversation from there. This will help you mitigate the risk of being scammed or giving away your personal information to imposters or deceivers who could use it to frustrate your life.
What is an FNMA enhancements letter scam?Some unsuspecting borrowers have reported receiving an FNMA enhancements letter from different financial institutions. A classic case is the JFQ Lending FNMA enhancements letter. Well, beware because these letters are pure scams. They do not originate or in any way trace back to Fannie Mae. When ProFed Credit Union clients started receiving enhancements letters from JFQ Lending, ProFed took immediate action and warned their customers of the prevalent FNMA enhancements letter scam. ProFed went on to state that customers’ mortgage information is publicly available. That means anyone including scammers can easily extract your mortgage details and start extorting money from you. When staring at a scam threat say from JFQ, always remember that JFQ Lending is a legitimate firm and is not behind the scam notifications sent to you. A scammer has assumed the company’s identity and when you call the number on the notification, it will link you directly to the scammer and not the actual lending firm. You can always seek to be double sure by engaging JFQ directly via their website before taking any rapid actions requested in the letter received. So, beware and keep a keen eye out for counterfeit FNMA enhancement promises.
Final wordsFrom the foregoing, you can clearly tell the principal role of Fannie Mae is to make affordable housing available to millions of Americans. FNMA essentially makes the home buying process easier while keeping costs and risks on the low. They also actively fuel equitable homeownership opportunities to unprecedented levels. However, buried within these noble interventions are scammers and deceivers that will go to great lengths to reap where they didn’t sow. It is therefore paramount to keep a keen eye out for any sinister FNMA enhancements letter purporting to afford you mouth-watering benefits. If anything, you should seek clarification from Fannie Mae only. That said, thanks to FNMA enhancements, housing opportunities are now in plenty even to the previously marginalized low-income borrowers. So, whether you are a new home buyer or an experienced homeowner looking to make a change, start by exploring the various FNMA mortgage enhancements available to you, whether you are eligible, and how they can suit your unique housing needs. Some of the FNMA mortgage programs you can check out include:
- Mortgage Help Network
- Tenant-In-Place Rental Program