What is Guidance Residential’s relationship with Freddie Mac & Fannie Mae?

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At Guidance Residential, we are asked sometimes about our relationship with Freddie Mac and Fannie Mae. The short answer is that we work with these government-owned corporations in a halal manner to benefit our customers.

What Are Freddie Mac and Fannie Mae?

In Short …

Freddie Mac and Fannie Mae are not banks, nor are they lending institutions. They are government-owned corporations that help support the home financing market.

In More Detail …

Fannie Mae (Federal National Mortgage Association) and Freddie Mac (Federal Home Loan Mortgage Corporation) are two government-sponsored enterprises (GSEs) pivotal to the United States housing market.

Their primary function is to expand the secondary mortgage market by securitizing mortgages, allowing financiers to reinvest their assets into providing more financing and, in turn, increasing the number of financiers providing services in the mortgage market.

Despite being operated as independent corporations, their backing by the federal government gives them a unique position in the housing finance sector.

A Brief History

Fannie Mae was established during the Great Depression in 1938 to rejuvenate the housing market by making more mortgages available. In 1968, Fannie Mae was transformed into a shareholder-owned corporation to remove its activity and debt from the federal budget.

In contrast, Freddie Mac was created in 1970 to provide competition to Fannie Mae and further expand the secondary mortgage market.

Both entities played significant roles in promoting homeownership by ensuring a reliable and affordable supply of funds in the mortgage industry nationwide.

Role in the Housing Market

The primary role of Fannie Mae and Freddie Mac in the housing market is to buy mortgages from mortgage companies, ie. lenders and other financiers, thus providing them with more liquidity to offer more mortgages to home buyers.

This process is crucial in stabilizing and providing liquidity to the U.S. housing market, ensuring that home buyers have access to funds needed for home purchases.

How Does Guidance Residential Work With Freddie Mac and Fannie Mae?

Guidance Residential is the only provider of Islamic co-ownership financing to have such an agreement with Freddie Mac. We are proud to offer this unique contract to serve American Muslim home buyers.

Guidance obtains external funding by bringing Freddie Mac and Fannie Mae on board as investors in our mortgages.

Here’s how it works:

  • Guidance Residential partners with home buyers to buy a home together as co-owners.
  • Freddie Mac or Fannie Mae makes investments to take a co-ownership stake in properties financed under the program.
  • This enables Guidance Residential to use the funds to assist more home buyers.

Guidance Residential is the only provider of Islamic co-ownership financing to have such an agreement with Freddie Mac. We are proud to offer this unique contract to serve American Muslim home buyers.

Does This Mean Guidance Sells Debt to Freddie Mac?

No. Buying and selling debt is not permissible according to the Islamic Shariah.

Guidance’s Shariah board, along with 18 law firms, developed a unique contract with Freddie Mac based upon the co-ownership model. This ensures that when Guidance transacts with Freddie Mac, a sale of the debt does not occur. Guidance simply brings on Freddie Mac as an additional investor.

Is This Halal?

Scholars have examined this question and determined that this arrangement is completely halal. The terms of the contracts signed by the home buyer remain the same.

The ability to buy and sell assets that we own — in this case, an ownership stake in a property — to any suitable buyer is permissible and adheres to our commitment to Islamic finance principles.

The result of this arrangement is access to financing and peace of mind for our customers, the homeowners.

Thinking of Buying or Refinancing a Home?

Guidance Residential’s co-ownership model of Islamic home financing remains the #1 U.S. Islamic home financing provider, with more than 40,000 families assisted over more than 20 years. Learn more and get started on your home finance journey today.

Your Guidance Residential Account Executive is here to help with any questions. Looking to refinance or purchase? Have a friend or family member who is looking for a home? Call 1.866.Guidance, or start an application today.

Originally published in July 2020, updated May 2024.