While going through the different steps of home buying, you will come across a number of institutions that are in existence to help borrowers and home buyers. Even when you are learning about mortgage, you will get to hear the names of institutions and agencies that play important roles behind the mortgage process.
An acronym for the U.S. Department of Housing and Urban Development, HUD, which was established in 1965, is a government agency that is responsible for the enforcement of fair housing laws, implementation and administration of housing and urban development programs, and creation for suitable living environment for all Americans.
Federal Housing Administration (FHA)
FHA predates even HUD, although it now functions as an agency of the later, as it came into existence in 1934 for creating more homeownership opportunities. It provides mortgage insurance to lenders, enabling them to make loans to qualified borrowers without worrying about losses in case of defaults. FHA is the world’s largest insurer of mortgages.
Department of Veterans Affairs (VA)
The Department of Veteran Affairs is a federal agency that exists to guarantee loans made to veterans and military people. A loan guarantee works the same as mortgage insurance, protecting lenders from losses due to borrowers default.
GSEs or the Government Sponsored Enterprises are financial services corporations that exist to reduce interest rates for farmers and homeowners. These institutions are formed by the United States Congress through federal acts. Fannie Mae and Freddie Mac are two important examples.
A GSE, Fannie Mae refers to Federal National Mortgage Association abbreviated as FNMA. It is a federally-chartered enterprise that helps continue a smooth flow of funds for the lenders to make loans to potential homebuyers. It does so through securitization of mortgages and selling them in the secondary market.
Popularly known as Freddie Mac, Federal Home Loan Mortgage Corporation (FHLM) is another federally chartered corporation owned by private stockholders. It issues mortgage-backed securities (MBS) for investors and provides lenders with funds for new home loans.
Owned by the federal government and supervised by the HUD, Ginnie Mae, which refers to Government National Mortgage Association (GNMA), securitizes FHA-insured loans and VA-guaranteed mortgages to provide lenders with the funds to make new loans. Like Fannie Mae and Freddie Mac, Ginnie Mae sells these MBSs in the secondary mortgage market.
National Credit Repositories
Also known as Credit Bureaus, these maintain credit-reporting databases and provide businesses with potential borrowers’ credit histories for a fee. Equifax, Experian, and TransUnion are three credit bureaus or credit reporting agencies.
FICO refers to Fair Isaac Corporation, which is associated with the widely used credit rating system known as FICO scores. A credit rating system is simply a numeric expression of creditworthiness based upon the borrower’s credit history. The higher the FICO score, which may be anything between 300 and 850, the better credit rating a consumer has.
Updated on: March 28th, 2015 by Marlon Brown