Although real estate mortgages are funded through banks, mortgage bankers, and their financial lending institutions, in most cases the money actually comes from two giant secondary lenders: Fannie Mae and Freddie Mac.

These are quasi-public organizations that create a secondary market for residential real estate loans. This means that when a bank creates a mortgage, it can then “sell” that mortgage to Fannie Mae or Freddie Mac and recoup most of its investment, which it can then loan out again. It continues to service the loan (collect the payments) for a fee, although it can also sell this servicing to some other similar organization if it chooses. (This is why, if you’ve ever had one of these mortgages, you find that the lender to whom you make payments is constantly changing.)

However, to sell a mortgage to Fannie Mae or Freddie Mac, the mortgage must conform to the underwriting criteria of these organizations. (Hence, these are called conforming loans). The one criterion that is important here is the maximum loan amount. This amount frequently changes, but as of this writing, the maximum is $417,000. In previous years it was much lower. This means that all the mortgages underwritten by Fannie Mae and Freddie Mac will be low to moderate in size, as will the market value of the properties on which these loans were made.

Although the underwriting practices of these two giants are probably the best in the world, including the use of a highly sophisticated financial database and computer analysis programs, sometimes borrowers find they can’t make the payments, can’t sell, and so lose their property to foreclosure. When this happens, Fannie Mae and Freddie Mac pick up the properties and then turn them around and try to resell them. Their goal is to minimize their loss, meaning they try to get the highest prices for them.

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Unlike HUD properties, which tend to be grouped together, Fannie Mac and Freddie Mac REOs are scattered all over the country. Very likely there is one in a neighborhood near you.

Both Fannie Mae and Freddie Mac sell their homes through local real estate agents. To make an offer, you must contact the agent.

Generally speaking, they prefer to sell to owner-occupants. However, particularly if the property is very rough, they do sell to investors.

As an investor, you are probably better off securing your own financing. You can try for a conforming loan. However, you may find that many of these properties will no longer qualify in their current condition, so other financing may be necessary.

Where Can I Find Freddie Mac Properties?

Freddie Mac sells its properties through its HomeSteps program. This is designed to help first-time and low-income homeowners get into houses. You can find information about it on the Internet.

The organization will provide some helpful tips on home purchases. But more important, it will help you find homes that it has for sale and agents who are approved to work for it.

At the site, by putting in the size, city or county, and price of the home you’re looking for, you’ll be given access to the Freddie Mac database listing available homes that fall under those parameters. You’ll be told the location of the property, the asking price, be given a map of the area, and told the real estate company that’s handling the sale. After that you’re on your own to contact the agent and go out and see the property.

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In talking with a Freddie Mac representative in Virginia, I was told that in 2001 the organization only had between 6000 and 7000 REOs for sale. This was done considerably from the 10,000 plus it had for sale during the real estate recession years of the 1990s. The number of homes available tends to vary depending on the economy and the overall real estate market.

Where Can I Find Fannie Mae Properties?

Fannie Mae offers its property through its HomePath organization. This is its home management division operating throughout the United States.

To find a Fannie Mae home in your area, go to the Internet and type www.fanniemae.com/homes. This takes you to their HomePath site.

Here you are asked for the parameters of the home you are searching for. You can list your price range, city, and home type. Then you’ll be shown an index of Fannie Mae REOs available in your area. You’ll also be told the name of the real estate agency that’s handling them and be given the option of seeing a map showing the property’s location.