Two sets of rules for the same loan
Conventional loans are sold to either Fannie Mae or Freddie Mac. Each publishes its own guidelines, and each has its own automated underwriting system: Desktop Underwriter for Fannie Mae and Loan Product Advisor for Freddie Mac. They agree on most things. Where they don't, the difference can decide whether you're approved, how much you qualify for, or what rate you pay.
Where they commonly differ
Student loans. One of the clearest examples. Fannie Mae can accept a documented $0 income driven payment. Freddie Mac uses 0.5% of the balance when the payment is $0 or deferred. On large balances, that alone can swing a debt ratio by several points. See conventional debt rules.** Automated findings.** The two systems weigh credit, reserves and debt differently. A borderline file can get an approval from one and a refer from the other. See AUS findings explained.** Income calculations.** Self employment, variable income and using assets as income are handled with different methods and documentation rules.** Condo projects.** Each agency evaluates project eligibility under its own standards, so a building can fit one and not the other. See conventional condos.** Affordable programs.** HomeReady and Home Possible are similar, but their details on income, eligible funds and borrowers aren't identical. See HomeReady and Home Possible.** Pricing.** Both agencies charge risk based pricing adjustments, and some lenders get different execution on Fannie Mae vs Freddie Mac loans. The same borrower can get a better rate on one, depending on the lender.
When I flip a file from one to the other
Some of my clients simply work better under one set of rules. When a file is tight on debt ratio, when student loans are involved, when the automated findings come back borderline, or when one execution prices better at a particular lender, I look at running it the other way. It's one of the quieter advantages of working with a broker who knows both rulebooks.
Most borrowers never know this happened. They just know they got approved, or got a better rate.
Why most borrowers never hear about this
Many lenders default to one agency for most of their loans. If your file happens to fit the other one better, nobody tells you. You either get declined, qualify for less, or pay more than you needed to.
What it means for you
If you've been told your debt ratio is too high for conventional, or you were quoted a rate that seems high for your credit, it's worth asking whether the file was looked at both ways. See why lenders quote different rates and conventional loan denied.
Approved once it was flipped
Tasha had $90,000 in student loans on an income driven plan with a documented $0 payment. Run under one agency's rules, the loans were counted at 0.5% of the balance, $450 a month, and her ratio failed. Run under the other agency's rules using her documented payment, her ratio fit and the file approved.
Same loan, better price
Marco's file qualified under both agencies. At the lender we used, one execution priced noticeably better for his credit score and down payment. Same approval, lower rate, and he never had to think about it.
Frequently asked questions
What is the difference between Fannie Mae and Freddie Mac?
Both buy conventional loans, but each has its own guidelines, automated underwriting system and pricing.
Can a loan be approved by Freddie Mac but not Fannie Mae?
Yes. Their rules and automated systems differ, so a borderline file can fit one and not the other.
Does Fannie Mae or Freddie Mac have better rates?
It depends on the borrower and the lender. Some lenders price them differently.
Which is better for student loans?
Often Fannie Mae, if you have a documented $0 income driven payment. Freddie Mac uses 0.5% of the balance when the payment is $0 or deferred.