What Does It Mean if Freddie Mac Owns My Mortgage?

Your lender may sell your mortgage, but the effect on you is minimal.

Your lender may sell your mortgage, but the effect on you is minimal.

To the uninitiated, "Freddie Mac" might sound like a cartoon rodent or perhaps a character in a gangster musical -- neither of whom you would probably want to own your mortgage. In reality, Freddie Mac is a government-backed corporation. You might not be crazy about such a thing owning your mortgage, either, but to be honest, as long as you stay current with your payments, who owns your mortgage has little practical effect on you.

The Secondary Market

In a typical loan arrangement, you borrow a sum of money from a bank or mortgage company, and then you pay that lender back over time. Most home mortgages, however, have terms of 15 or 30 years. That's a long time for the lender to have its money tied up, so most lenders don't actually hold onto their mortgages. Instead, they sell them to outside investors on what's called the secondary mortgage market. The lender gets its money back, plus a little profit, and it can turn around and lend that money to someone else. The investor gets the right to collect the mortgage payments over the next 15 to 30 years.

Mortgage Repurchasers

The secondary mortgage market is a critical element of the U.S. housing sector, because it ensures that there will be cash available to lend to people who want to buy homes (provided, of course, that they qualify or a loan). That's why the federal government chartered two corporations to act as mortgage repurchasers: the Federal National Mortgage Association, or FNMA, which came to be known as "Fannie Mae," and the Federal Home Loan Mortgage Corporation, or FHLMC, which came to be known as "Freddie Mac." As of 2012, Fannie and Freddie owned more than half of all U.S. residential mortgages.

Freddie Mac Owns Your Mortgage

If Freddie Mac owns your mortgage, then your lender must have sold it to Freddie Mac -- or sold it to an investor that eventually did. This is nothing to be alarmed about. In fact, it's kind of a vote of confidence in you. Freddie Mac only buys mortgages that meet its underwriting criteria, meaning that it considers you a good credit risk and your home a worthy investment. Freddie Mac and Fannie Mae sell securities -- bonds, essentially -- backed by the cash flows from millions of homeowners' mortgage payments.

What It Means to You

The terms of your mortgage remain the same regardless of who owns it. If you were paying, say, 5 percent interest before Freddie Mac bought your mortgage, then you'll pay 5 percent interest afterward. The only change you might see is that you will be asked to send your mortgage payments to a new address. Freddie Mac typically hires third parties to "service" its mortgages, which means keeping track of payments, handling escrow for insurance and taxes, and processing the paperwork when you want to sell your home and pay off the loan. If you default on the mortgage, though, it will be Freddie Mac coming to foreclose, not the original lender.

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