How We Provide Affordability to the Mortgage Market

Freddie Mac and Fannie Mae each do more to finance affordable housing than any other financial institution:

• We operate in the low-, moderate- and middle-income segments of the mortgage market. As a result of our activities, families in this market save at least ¼ percent on their mortgages compared to families financing larger mortgages. Lower mortgage rates produced by the activities of the GSEs have been estimated to save America's homeowners between $8.4 billion and $23.5 billion annually in interest costs.¹

  Conforming Mortgage Rates Are Lower Than Jumbo Mortgage Rates, Making Housing More Affordable
  Source: Freddie Mac, HSH Associates, Banxquote

  
  

• As a result of the GSEs, mortgage credit is readily available across the country at about the same interest rate, regardless of whether a local housing market is in a peak or trough. For a $100,000 30-year fixed-rate loan originated in 1970, a family in Denver would have paid $42,000 more in interest over the 30-year term of the loan than a family in New York; in 2004, these costs were virtually identical in both locations.²

• Thanks to the GSEs, America's homebuyers can choose among a wide range of mortgage products, including long-term, fixed-rate freely prepayable mortgages – the mortgage of choice for many families. Such loans are less readily available in the jumbo market in the U.S.³ and are largely absent in other countries.

• The GSEs are constantly striving to reduce the cost of homeownership through low down payments and reduced transactions costs that have resulted from technological advancements we pioneered. From the development of mortgage-backed securities to standardized mortgage documents to automated underwriting, the two GSEs have made getting a mortgage quicker, easier and cheaper.

• Freddie Mac is committed to helping families seeking decent and affordable rental housing by increasing its purchase of mortgages that fund multifamily housing. In 2004, for example, Freddie Mac's multifamily mortgage financings totaled $23.8 billion, an all-time single-year record. Freddie Mac's multifamily transactions in 2004 financed approximately 450,000 homes affordable to families earning low or moderate incomes.

One measure of how we make housing more affordable is our annual affordable housing goals, which are set by the Department of Housing and Urban Development (HUD). The goals are targeted to low- and moderate-income families, very low-income families and low-income families living in low-income areas, and families living in HUD-defined underserved areas. The HUD goals, which are set as a percent of total purchases, have risen steadily since they became permanent in 1995. Under new regulations promulgated last year, both companies are facing higher goals that increase each year from 2005 to 2008. In addition, new aggressive subgoals have been added to further target our mortgage purchase activity to home-purchase mortgages. Without a doubt, these requirements represent the toughest affordable housing regime of any financial institution.

We view the purchase of mortgage loans benefiting low- and moderate-income families and neighborhoods as a principal part of our mission and business, and remain committed to fulfilling the needs of these borrowers and markets.

Low-Down-Payment Mortgages And Lower RatesHave Increased Homeownership
Source: U.S. Census Bureau

¹ J. Pearce and J. Miller, Freddie Mac and Fannie Mae: Their Funding Advantage and Benefits to Consumers, January 2001.

² Mortgage rates in 1970 are from Stephen T. Zabrenski, James R. Barth and Michael L. Marlow, "Determinants of Regional Mortgage Rates under Varying Economic Conditions," Quarterly Review of Economics and Business, Spring 1982, p. 82. Conforming mortgage interest rates in 2004 are from HSH Associates, Butler, NJ.

³ According to the Federal Housing Finance Board's Mortgage Interest Rate Survey, in 2004, adjustable-rate mortgages comprised about 71 percent of jumbo loans but only 31 percent of conforming loans.

⁴ An individual mortgage may qualify for more than one of the goals. Each of the goal percentages is determined independently and cannot be aggregated to determine a percentage of total purchases that qualifies for these goals.