The Federal Home Loan Mortgage Corp. (FHLMC), or Freddie Mac, is a stockholder-owned, government-sponsored enterprise (GSE) chartered by Congress in 1970 to keep money flowing to mortgage lenders, supporting homeownership and rentalꦑꦏ housing for middle-income Americans.

Freddie Mac purchases, guarantees, and securitizes home loans and is a mainstay of the secondary mortgage market.

History of Freddie Mac

Freddie Mac was created when Congress passed the Emergency Home Finance Act in 1970. A wholly owned subsidiary of the Federal Home Loan Bank System (FHLBS), it represented an attempt to reduce i🎶nterest rate risk for savings and loans asso🔯ciations and smaller banks.

Freddie Mac underwent a reorganization in 1989 under the Financial Institutions Reform, Recovery, and Enforcemen꧂t Act (FIRREA). It became a publicly owned company, with shares that could trade on the New York Stock Exchange.

In 2008, during the financial crisis sparked by the 澳洲幸运5官方开奖结果体彩网:subprime mortgage meltdown, the U.S. government—specifically, the 澳洲幸运5官方开奖结果体彩网:Federal Housing Finance Agency—took over the Federal Home Loan Mortgage Corp. Though Freddie Mac is gradually transitioning toward independence, it remains under federal conservatorship.🍒

How Freddie Mac Works

The Federal Home Loan Mortgage Corp., or Freddie Mac, was created to enhance the flow of credit to different parts of the economy. Along with 澳洲幸运5官方开奖结果体彩网:Fannie Mae, it is a key player in the 澳洲幸运5官方开奖结果体彩网:secondary mortgage market.

Fre꧒ddie Mac doesn’t originate or service home mortgages. Instead, it buys home loans from banks and other commercial mortgage lenders (giving these institutions funds that they can then use to finance more loans and mortgages). These loans must meet certain standards that Freddie Mac sets.

After purchasing a large number of these mortgages, Freddie Mac either holds them in its own portfolio or combines and sells them as 澳洲幸运5官方开奖结果体彩网:mortgage-backed securities (MBS) to investors who are seeking a steady income stream. Either way, it "insures" these mortgages—that is, it guarantees the timely payment of principal and interest on the loans. As a result, securities issued by Freddie Mac tend to be very liquid and carry a credit rating close to that of U.S. Treasuries.

Critic😼ism of the Federal Home Loan Mortgage Corp. (FHLMC)

Freddie Mac has come under criticism because its ties to the U.S. government allow it to borrow money at 澳洲幸运5官方开奖结果体彩网:interest rates lower than those available to other financial institutions. With this funding advantage, it issues large amounts of debt (known in the marketplace as “agency debt” or “agencies”), and in turn purchases and holds a huge 澳洲幸运5官方开奖结果体彩网:portfolio of mortgages known as its “retained portfolio.”

Critics have argued that Freddie Mac and Fannie Mae's unchecked growth led to the 澳洲幸运5官方开奖结果体彩网:2008 credit crisis, which plunged the U.S. into the 澳洲幸运5官方开奖结果体彩网:Great Recession. In response, advocates of the enterprises argue that, while Freddie and Fannie made bad business decisions and held insufficient capital during the housing bubble, their portfolios made up only a tiny fraction of total subprime loans.

Freddie Mac vs. Fannie Mae 

Fannie Mae (Federal National Mortgage Association or FNMA) was created in 1938 as part of an amendment to the 澳洲幸运5官方开奖结果体彩网:National Housing Act. It was considered a federal government agency, and its role was to act as a secondary mortgage market that could purchase, hold, or sell loans that the Federal Housing Administration insured. Fannie Mae stopped being a federal government agency and became a private-public corporation under the Charter Act of 1954.

Fannie Mae and Freddie Mac are 🍒very similar. Both are publicly traded companies chartered to serve a public missi🅠on. The main difference between the two is the source of the mortgages they buy.

Fannie Mae buys mortgage loans from major retail or commercial banks. In contrast, Freddie Mac buys its loans from smaller banks, often called “澳洲幸运5官方开奖结果体彩网:thrift banks” or “savings and loan associations,” that are f꧒ocused on providing banking services to comm🐈unities.

Frequently Asked Questions (FAQs)

The Bottom Line

Th💯e Federal 💖Home Loan Mortgage Corp. (FHLMC), or Freddie Mac, plays a crucial role in the housing market by backing loans to borrowers. Freddie Mac does not lend to borrowers directly, but backs mortgages so lenders can approve loans. However, you still must meet certain standards to qualify for a mortgage guaranteed by Freddie Mac.