The basic activities of Fannie Mae in the secondary mortgage market:
Fannie Mae and Freddie Mac have had a vast array of effects on the housing finance system of the U.S.
• Their first impact was to bring much-needed liquidity to housing finance.
• A second effect was to standardize the documents and procedures in home mortgage lending.
• A third effect has been to encourage greater efficiency and flexibility in the process of home mortgage lending.
• Another effect has been to broaden the range of households able to obtain mortgage financing through more sophisticated and effective loan underwriting.
• Finally, they have had a great effect on the types of loans presently available to homeowners.
Through all of this the Government-Sponsored Enterprises (GSEs) have reduced the interest rates and costs of borrowing for homeowners.
A forward commitment is a commitment now to sell/buy something in the future at a price set now. The commitment is mandatory; that is, the parties must complete the transaction. A standby forward commitment is the same arrangement except that one party, usually the seller, has the option of completing the transaction (delivering) or abandoning the contract.
Mortgage bankers use forward commitments to hedge against price changes on loans. This commitment obligates the secondary market investor to purchase, and the mortgage banker to sell, a pre-specified dollar amount of a certain type of loan. It is used for loans that are sure to be originated.
Standby forward commitments hedge price changes for loans that may or may not be originated. Standby forward commitments from secondary market investors give lenders the right, but not the obligation, to sell a certain dollar amount of a certain loan type to the issuer of the standby commitment.
Affordable housing loans include a low down payment requirement and allow for extensive flexibility in one of the "three Cs" of underwriting, while maintaining the other two at more normal standards. Therefore, three factors involved in qualifying for a loan may be relaxed: the loan-to-value ratio, credit qualifications, and payment capacity.