FREE MARKET SYSTEM AUCTION


FREE MARKET SYSTEM AUCTION is an auction process used by the Federal National Mortgage Association (Fannie Mae) in which the association accepts bids from approved lenders as to the amount, price, and terms of existing mortgages that these lenders wish to sell to Fannie Mae1.

Upon deciding how much money it will spend during a given time period, Fannie Mae notifies the successful bidders (determined by those mortgages offered for sale will generate the highest yield to Fannie Mae), and these bidders have a certain period in which they can choose to deliver the mortgages1. Once the mortgages have been delivered to Fannie Mae, the originator of the mortgage continues to service the loan (collect monthly payments, escrow property taxes, etc.) and for this service, the originator receives a servicing fee.

The purpose of the FREE MARKET SYSTEM AUCTION is to provide liquidity to the mortgage market and to help ensure that mortgage rates remain competitive. By purchasing existing mortgages from approved lenders, Fannie Mae is able to free up capital for these lenders, which they can then use to make new loans. This helps to keep the mortgage market moving and ensures that borrowers have access to affordable mortgage rates.

It is important to note that not all mortgages are eligible for purchase by Fannie Mae. Mortgages must meet certain criteria, such as conforming to the size limits set by the Federal Housing Finance Agency (FHFA), to be eligible for purchase.


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