February 7, 2025

Freddie Mac Overview

Freddie Mac

Freddie Mac

Introduction

The Federal Home Loan Mortgage Corporation, or Freddie Mac (FHLMC), is a privately owned, government approved company that was founded by the United States Congress in 1970 to offer sustainable, aesthetically pleasing and inexpensive home finance. The company is a part of the numerous government sponsored enterprises (GSEs) that have been set up since the  20th century to assist in lowering the amount of credit to different borrowing segments of the economy. The company has its head offices located in McLean, Virginia, and Washington, D.C. Freddie Mac conducts its business primarily through the acquisition of mortgages from lenders, rebranding of the purchased mortgages into mortgage-backed securities (securities backed by cash flows from a vast variety of mortgage loans), and sale of those securities to investors with a promise of prompt principal and interest payments, whether or not the initial clients make payments. Mortgage lenders refill the cash allocated to house buyers at a cheaper amount by funding other mortgages using the revenues from their loan sales to Freddie Mac. The Federal National Mortgage Association (FNMA), also known as Fannie Mae, was perhaps the sole institution that engaged in the purchase and marketing of mortgages with government insurance from 1938 to 1968. By privatizing Fannie Mae in 1968 and establishing Freddie Mac in 1970, Congress increased competition in the secondary mortgage market (the market for the purchase and sale of mortgage loans).

History of Freddie Mac and why it was formed

The Justice Department, Congress, and the Securities and Exchange Commission (SEC) have all increased their scrutiny of the two biggest mortgage lenders in the country (US). Since 1968, the Federal Home Mortgage Corporation (Freddie Mac) and the Federal National Mortgage Association (Fannie Mae) have functioned as government-sponsored businesses (GSEs). This indicates that although though the two businesses are privately held and run by shareholders, they benefit financially from support provided by the federal government. These government safeguards include the ability to borrow money from the U.S. Treasury, immunity from federal, state, and local income taxes, and immunity from SEC regulation.

Now I’m sure you’re stunned that I mentioned Fannie Mae. The history of Freddie Mac isn’t truly complete without the mentioning the sole reason why the firm was created. As a component of Franklin Delano Roosevelt’s New Deal, Fannie Mae was established in 1938. Following the Great Depression, the national housing market collapse deterred private lenders from funding mortgage loans. In an effort to increase levels of home ownership and the availability of affordable housing, Fannie Mae was founded to give regional banks access to federal funding for the financing of mortgages on homes. Local banks were able to offer low interest rates on mortgages at first because of Fannie Mae. This resulted in the creation of the secondary mortgage market, as it is known today. Because of the financial assistance that they receive from the U.S. Government, businesses like Fannie Mae are able to borrow money from overseas investors in the secondary mortgage market at cheap interest rates. Because of its capacity for low-interest borrowing, Fannie Mae is able to provide homebuyers fixed-rate mortgages with modest down payments. The differential between the loan rates that homeowners pay and those that foreign lenders charge is how Fannie Mae generates revenue. Fannie Mae had a virtual stranglehold on the secondary mortgage market for the first thirty years after its founding making the market monopolized. To curb this issue of monopoly and give room for competition in the secondary mortgage industry, Freddie Mac was established by Congress in 1970, as a private corporation through the Emergency Home Finance Act of 1970. Asides elevating competition levels, the company was created to further increase the amount of money that is available to finance mortgages and home ownership.

 Currently, Fannie Mae and Freddie Mac dominate the secondary market in the United States by about 90%.

At first, the Federal Home Loan Bank was in possession of Freddie Mac, and the Federal Home Loan Bank Board oversaw its operations. The management of Fannie Mae and Freddie Mac was updated and standardized in 1989 by the Financial Institutions Reform, Recovery and Enforcement Act of 1989 (abbreviated as “FIRREA”). Freddie Mac’s ties to the Federal Home Loan Bank System were likewise cut. The Federal Home Loan Bank Board (FHLBB) was eliminated and changed to a new, independent organization. Freddie Mac established an 18-member board of directors, which is overseen by the U.S. Department of Housing and Urban Development (HUD). Additionally, the Federal Home Loan Banks Board was replaced by the Federal Housing Finance Board (FHFB), a new autonomous organization (also called district banks).

Freddie Mac started obtaining affordable housing credit in 1995 in exchange for purchasing subprime assets and on Sunday, September 7, 2008, the US federal government placed Freddie Mac under conservatorship of the FHFA (Federal Housing Finance Agency).

Conservatorship

Director of the Federal Housing Finance Agency (FHFA), James B. Lockhart III, declared that he had positioned Freddie Mac under the FHFA’s conservatorship in accordance with the FHFA’s financial analyses, assessments, and legal authority. According to FHFA, there are absolutely no intentions to liquidate the business. This event happened on the 7th of September, 2008. The news came after rumors surfaced two days earlier that the government planned to acquire the firm and had unexpectedly met with the executive officers of the company.

Awards

-In 2004, Working Mothers magazine ranked Freddie Mac as one of the 100 Best Companies for Working Mothers.

-In Forbes’ 2009 list of the Global 2,000 public firms, Freddie Mac came in at number 20.

-Freddie Mac was positioned at number 50 in the Fortune 500’s 2007 rankings.

-According to the Human Rights Campaign’s 2018 Corporate Equality Index, Freddie Mac was acknowledged as one of the Perfect Companies to Work for LGBTQ Equality.

In every region of the country and during all economic cycles, America depends on Freddie Mac to maintain the housing market and the country’s tenants, purchasers, and homeowners. Since being established, the company has carried out its mandate to maintain the liquidity of the mortgage market, support market stability, and advance home affordability. And its keep driving the housing sector forward by creating a better home finance platform which will serve both the needs of today and tomorrow.

The single-family business segment and the multifamily business segment are how the company conducts business. The Single-Family Division, Multifamily Division, and Capital Markets Division are principally responsible for supporting those two segments.

The company’s single-family business segment encourages savvy, environmentally friendly house ownership. Specifically, the Single-Family Division and Capital Markets Division collaborates to achieve this feat. These divisions collaborate with lending firms of all sizes, including credit unions, national, regional, and local lenders, to buy conventional, conforming mortgage loans for one- to four-unit homes, including condominiums and manufactured houses, up to a predetermined dollar amount determined by a regulator.

On the other hand, The work of the company’s Multifamily Division and the capital markets activities within that group and the Capital Markets Division are the main ways in which our multifamily business segment supports affordable rental opportunities across the country.

Freddie Mac provides funding for loans on properties ranging from five units to hundreds of units across numerous buildings by collaborating with a network of specialized lenders. All forms of multifamily housing are supported by the organization countrywide, including smaller buildings and communities of manufactured homes as well as conventional, elder, student, and subsidized housing.

With $3.026 trillion in assets under control, Freddie Mac is placed No. 56 on the 2022 Fortune 500 ranking of the largest American firms by total revenue. Running the affairs of the company today is Michael Devito (CEO) and Sarah Mathew (Non-Executive Chair).

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