Freddie Mac

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Freddie Mac (Federal Home Loan Mortgage Corporation)

What it is

Freddie Mac (the Federal Home Loan Mortgage Corporation, FHLMC) is a stockholder-owned, government-sponsored enterprise (GSE) chartered by Congress in 1970 to support liquidity in the U.S. mortgage market. It helps make homeownership and rental housing more available to middle‑income Americans by purchasing mortgages from lenders, guaranteeing payments, and securitizing loans.

Key points

  • Freddie Mac does not originate or service mortgages; it buys loans from lenders and sets eligibility standards.
  • It packages pools of mortgages into mortgage‑backed securities (MBS) or holds loans in a retained portfolio.
  • Freddie Mac guarantees timely principal and interest payments on its securities, making them attractive and liquid investments.
  • Along with Fannie Mae, it is a principal participant in the secondary mortgage market.

History (brief)

  • 1970 — Chartered by Congress to increase the availability of mortgage credit, especially for smaller banks and savings institutions.
  • 1989 — Reorganized under the Financial Institutions Reform, Recovery, and Enforcement Act and became publicly traded.
  • 2008 — Placed into federal conservatorship by the Federal Housing Finance Agency amid the financial crisis; it remains under conservatorship while undergoing gradual changes in oversight and structure.

How Freddie Mac works

  1. Lenders originate mortgages to borrowers.
  2. Freddie Mac buys eligible loans from those lenders, freeing lending institutions to make more loans.
  3. Freddie Mac either:
  4. Keeps loans in its portfolio, or
  5. Pools loans and issues mortgage‑backed securities (MBS) that are sold to investors.
  6. Freddie Mac guarantees timely payment of principal and interest on securities it issues, reducing investor risk and increasing market liquidity.

Why it matters

  • Provides liquidity to lenders, which supports lending capacity and mortgage availability.
  • Standardizes underwriting and documentation through its loan eligibility rules.
  • Its guarantees and high credit standing help lower borrowing costs for consumers.

Criticism and controversies

  • Funding advantage: As a GSE with government ties, Freddie Mac can borrow at lower rates than many private firms, which critics say creates an unfair competitive edge.
  • Scale and risk: Critics contend the growth and risk‑taking of Freddie Mac and Fannie Mae contributed to the 2008 financial crisis. Defenders note their retained portfolios represented only part of the broader subprime problem.
  • Government involvement: Freddie Mac’s conservatorship since 2008 has prompted ongoing debates about the proper federal role, risk allocation, and the future structure of the secondary mortgage market.

Freddie Mac vs. Fannie Mae

  • Both are publicly traded GSEs with similar missions: to support mortgage liquidity and affordability.
  • Main operational distinction historically: Fannie Mae primarily buys loans from larger retail or commercial banks; Freddie Mac traditionally bought loans from smaller banks and thrifts. In practice today, the lines often overlap.
  • Both operate in the secondary mortgage market, issuing agency MBS and guaranteeing payments to investors.

Common questions

How hard is it to get a Freddie Mac loan?
Qualification depends on the originating lender and the type of Freddie Mac program. Borrowers must meet credit, income, and property standards set by the lender and Freddie Mac.

Do you need a down payment for a Freddie Mac loan?
Yes. Down payment requirements vary by program; some programs accept low down payments.

Does Freddie Mac offer a 3% down program?
Yes. HomeOne is a Freddie Mac program that allows qualified borrowers (often first‑time buyers) to put down as little as 3% on eligible properties.

Bottom line

Freddie Mac plays a central role in the U.S. housing finance system by buying mortgages, providing guarantees, and issuing mortgage‑backed securities to keep credit flowing to homebuyers and renters. While it increases market liquidity and helps lower borrowing costs, its government ties and role in systemic risk remain subjects of debate.