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Freddie Mac Secrets
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Freddie Mac Secrets
Acronyms seem to be everywhere in the mortgage industry. Freddie Mac is one such acronym and an important one when trying to understand how the mortgage industry works.
A Quick Guide to Freddie Mac
Freddie Mac actually stands for the Federal Home Loan Mortgage Corporation. Based in McLean, Virginia, Freddie Mac is a social financing experiment that has worked out very well. It was created in 1970 by the federal government, but is a shareholder owned entity that trades on the New York Stock Exchange. It remains heavily regulated by the government, which makes it one of the few quasi-publicly traded government agencies/business entities. How it became known by that name is anyone's guess, but the company performs a very important function in the mortgage industry.
As you know, the real estate market went through an absolutely massive boom recently. A lot of money was moved during that market in the form of mortgage loans. Given the rate of purchase for homes, have you ever wondered where the money was coming from? Well, the lenders were selling off the loans on the secondary market to gain liquidity so they could write even more loans. This is where Freddie Mac comes in.
Freddie Mac is charged by the federal government with providing liquidity in the secondary mortgage market. Simply put, it buys loans from lenders that meet certain classifications. By serving this function, Freddie Mac pumps money into the market, giving the bank the ability to continue to issue loans to you and me. This is reflective of an overall government policy of promoting home ownership, which is the staple of middle class America.
While Freddie Mac stands ready to buy loans from retail lenders, it does not just buy anything. Instead, it issues specifications regarding the types of loans it will buy. As you might guess, first time buyers and low income purchases are favored. The point is to expand homeownership, and Freddie Mac does that through its various policies.
Since Freddie Mac is a publicly traded company, you are probably wondering how it makes money. Well, the company takes the loans it has purchased and sells them to other investors! There is a little twist, however, that makes these loans an excellent investment for private money investors. Freddie Mac guarantees that the investor will be repaid on the loan even if the individual who borrowed the money fails to make all the payments. In exchange for this guarantee, Freddie Mac keeps a small percentage of the interest being paid by the borrower on the loan. When this small amount is multiplied over the total volume of loans Freddie Mac handles, revenues in the billions are generated.
Freddie Mac is indeed a unique beast, chartered by the government but publicly traded. There is little dispute, however, that it is one government creation that has worked well.
Sergio Haros is with Great Western Mortgage - mortgage articles demystifying the mortgage process.
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Fixing Houses for Profit - Avoid Costly Mistakes
There's no doubt that you can make significant amounts of money by buying, repairing, and reselling houses. However, it takes knowledge, time, and careful planning to make maximum profits in a minimum amount of time, and if you make a mistake along the way, it can make a serious dent in your bottom line.
1. Buy Wholesale
The first step in avoiding costly mistakes is to arm yourself with as much knowledge of your target area as possible. You need to know the ultimate sales price of a property BEFORE you even think about making an offer. Think of yourself as a retailer, buying as close to wholesale as you can and then selling retail once the work has been completed.
2. Estimate Accurately
Whether you do the fix-up work yourself or contract it out, besides knowing how much the home will eventually sell for, you'll need to get a strong handle on how much repair a home will require and how much those repairs will cost. This can be a huge mistake if you don't calculate the repair costs as accurately as possible. Of course, you're going to find surprises along the way, but if you've added a certain percentage of "fudge factor" into your estimate, those surprises shouldn't be enough to wipe out your profit at sale time.
3. Plan Ahead
Once you begin seriously considering a home for purchase, another big mistake is not to start getting your contractors lined up to quickly get in and do the work that will be required for resale. Beginning investors often wait until closing to start lining up their contractors, only to find that they're already booked on other jobs and won't be able to get to their project for weeks or months. As soon as your sales transaction has entered escrow, get on the phone and start mobilizing your home renovation team. That way, you'll be ready to begin work as soon as the sale closes, which will put more money in your pocket through a faster resale.
4. Shop Around
Another common mistake that can hurt your overall bottom line is not shopping hard for materials. You may have to hire contractors to do the work, but that doesn't necessarily mean those contractors will shop hard for the best buys on things like paint, appliances, fixtures, carpet, and all the other materials and supplies that will be necessary to upgrade and repair a home for resale. You can save hundreds or even thousands of dollars by shopping for materials instead of either just buying them or having your contractors buy them.
5. Scrutinize Work
Finally, another common mistake, especially if you're having contractors do the work, is to just let a project continue without constantly monitoring its progress. That means giving up your weekend plans for awhile to either work on the property or to monitor how your contractors are coming along.
Remember, buying, repairing, and reselling homes is a business, and requires just as much business sense and attention to detail as any other commercial enterprise. Avoiding common mistakes such as the ones we've mentioned can add thousands of dollars to your bottom line on each property.
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