Freddie Mac is not a person that you would find walking down the street. The title is actually a nickname for the Federal Home Loan Mortgage Corporation (FHLMC.) This company is publically traded and operates under a federal charter. It is the nation's second-largest mortgage buyer.
The business was chartered by Congress in 1970 to maximize mortgages in the United States. This means that Freddie Mac is a government-sponsored business. The mission is in their slogan: the Freddie Mac corporation wants to "make home possible."
The company works under the Federal Housing & Finance Agency in the residential mortgage market and operates solely within the United States. It is one of the only Fortune 500 companies not required to disclose to the public its financial difficulties.
How Freddie Mac Works
One of Freddie's chief strategies is mortgage securitization. Here's how it works: once a homeowner receives a mortgage loan to buy a house, the lender sells the loan to Freddie Mac. They do this instead of relying on repayment from the borrower—avoiding risk. Freddie Mac takes these loans and bundles them into mortgage-backed bonds that can be sold as pensions or investments to institutions and insurance companies.
Other investor's around the world purchase these bonds and homeowner's mortgage payments are applied to them. Because the bonds are implicitly backed by the United States government, they are given a very high rating. Freddie Mac guarantees mortgages exclusively in the conventional conforming market, because they have a limit on the dollar amount they will purchase for a loan. For 2012, that limit is $417,000 dollars for most of the nation.
In 2011, Freddie Mac helped almost one million families buy homes. 50,071 homebuyers in the United States used this GSE to purchase their first home. Freddie Mac normally funds home loans with an average mortgage of $202,589, according to their website.
Stabilizing Housing by Avoiding Defaulted Mortgages
Not only does Freddie Mac help people to get the mortgage they need to buy a home, but they help households to stay afloat once the home is being paid for.
In 2011, only three years after the Great Recession, the company allowed 116,400 households to avoid foreclosure through loan modifications, repayment plans, forbearances, and other means. They have three business lines: a business for single-family credit guarantee home loans, an investment portfolio, and an enterprise for apartment financing. Freddie's largest rival is another federal mortgage buying company known as Fannie Mae. This alternate company was created in the 1930s by President Roosevelt as a part of the New Deal in response to the housing market collapse of the Great Depression.
The company states that it has three goals:
- To make sure that financial institutions have mortgage money to lend
- To make it easier for consumers to afford a decent home or apartment
- To stabilize the residential mortgage markets in a time of financial crisis
While competing against each other, the two companies together increase the availability of loans to new homebuyers. The entities collaborate to lower the cost of millions of mortgages, allowing Americans to receive a higher standard of living and enjoy the luxury of an owned home. Both companies have experienced incredible financial growth over the past decade. In fact, the History News Networks states that between Fannie Mae and Freddie Mac, profits are 45 percent higher than America's largest bank.
In summation, this company works to stabilize the economy through stabilizing the housing market, helping families avoid foreclosure, and creating new opportunities for people who are looking for an affordable, sustainable path to the American dream of homeownership..