Freddie Mac — Federal Home Loan Mortgage Corp. (FHLMC)

What Is Freddie Mac — Federal Home Loan Mortgage Corp. (FHLMC)?

The Federal Home Loan Mortgage Corp. (FHLMC) is a stockholder-owned, government-sponsored enterprise (GSE) chartered by Congress in 1970 to keep money flowing to mortgage lenders, which thus supports homeownership and rental housing for middle-income Americans. The FHLMC, recognizably known as Freddie Mac, purchases, guarantees, and securitizes home loans and is a pillar of the secondary mortgage market.

History of Freddie Mac

Freddie Mac was made when Congress passed the Emergency Home Finance Act in 1970. A wholly owned subsidiary of the Federal Home Loan Bank System (FHLBS), it addressed an endeavor to reduce interest rate risk for savings and loans associations and more modest banks. In 1989, under the Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA), Freddie Mac went through a reorganization. It turned into a publicly owned company, with shares that could trade on the New York Stock Exchange.

In 2008, during the financial crisis ignited by the subprime mortgage meltdown, the U.S. government — explicitly, the Federal Housing Finance Agency — took over Freddie Mac. However it's bit by bit progressing toward independence, it stays under federal conservatorship.

How Does Freddie Mac Respond?

Freddie Mac was made to improve the flow of credit to various parts of the economy. Alongside a comparative GSE, Fannie Mae, it is a key player in the secondary mortgage market.

Freddie Mac doesn't start or service home mortgages itself. Rather, 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 fulfill certain guidelines that Freddie Mac sets.

In the wake of purchasing a large number of these mortgages, Freddie Mac either holds them in its own portfolio or consolidates and sells them as mortgage-backed securities (MBS) to investors who are seeking a consistent income stream. One way or another, it "protects" these mortgages — that is, it guarantees the ideal payment of principal and interest on the loans. Therefore, securities issued by Freddie Mac will generally be exceptionally liquid and carry a credit rating close to that of U.S. Treasuries.

62%

The percentage of all U.S. mortgage starts (that is, new loans) securitized and guaranteed by Freddie Mac and its sister enterprise, Fannie Mae, as of mid-2020.

Analysis of Freddie Mac

Freddie Mac has gone under analysis in light of the fact that its connections to the U.S. government permit it to borrow money at interest rates lower than those accessible to other financial institutions. With this funding advantage, it issues large measures of debt (referred to in the marketplace as "agency debt" or "offices"), and thusly purchases and holds a colossal portfolio of mortgages known as its "retained portfolio."

Certain individuals accept that the size of the retained portfolio combined with the intricacies of overseeing mortgage risk represents a great deal of systematic risk to the U.S. economy. Pundits have contended that the uncontrolled growth of Freddie Mac and Fannie Mae prompted the credit crisis of 2008 that plunged the U.S. into the Great Recession. (In response, backers of the enterprises contend that, while Freddie and Fannie pursued terrible business choices and held deficient capital during the housing bubble, their portfolios made up just a small fraction of total subprime loans.)

Fannie Mae and Freddie Mac's single-family foreclosure moratorium, put in place due to the 2020 economic crisis, ended on July 31, 2021. In any case, real estate owned removals are stopped until Sept. 30 and their forbearance programs proceed. Homeowners with mortgages can select and stop their payments for as long as a year; the people who were enrolled as of Feb. 28, 2021, may fit the bill for as long as 18 months. Different borrowers might be eligible for a loan modification.

Freddie Mac versus Fannie Mae

Fannie Mae (Federal National Mortgage Association or FNMA) was made in 1938 as part of an amendment to the National Housing Act. It was viewed as a federal government agency, and its job was to act as a secondary mortgage market that could purchase, hold, or sell loans that were insured by the Federal Housing Administration. Fannie Mae stopped being a federal government agency and turned into a private-public corporation under the Charter Act of 1954.

Fannie Mae and Freddie Mac are basically the same. Both are publicly traded companies that were chartered to serve a public mission. The primary difference between the two boils down to the source of the mortgages they buy. Fannie Mae buys mortgage loans from major retail or commercial banks, while Freddie Mac acquires its loans from more modest banks, frequently called "thrift banks" or "savings and loan associations," that are centered around giving banking services to networks.

Features

• Freddie Mac is a stockholder-owned, government-sponsored enterprise (GSE) chartered by Congress in 1970 in support of homeownership for middle-income Americans.
• The job of Freddie Mac is to buy a large number of loans from mortgage lenders, then consolidate them and sell them as mortgage-backed securities.
• Fannie Mae and Freddie Mac are both publicly traded GSEs. The fundamental difference between them is that Fannie Mae buys mortgage loans from major retail or commercial banks, while Freddie Mac gets its loans from more modest banks.
• Some have contended that uncontrolled growth for Fannie Mae and Freddie Mac was a primary driver in what prompted the credit crisis of 2008 that transformed into the Great Recession.
• Freddie Mac is the formally acknowledged epithet for the Federal Home Loan Mortgage Corp. (FHLMC).