Q

What is Freddie Mac?

A

It is the colloquial name used for the Federal Home Loan Mortgage Corporation (FHLMC). Learn more below.

It is the colloquial name used for the Federal Home Loan Mortgage Corporation (FHLMC). Even though Freddie Mac was created by the Federal government, it isn’t actually part of it; like its cousins, the similarly folky titled Fannie Mae and Sallie Mae, it is instead a Government Sponsored Enterprise (GSE), meaning it’s an independent corporation that came to being as an act of Congress. Along with Fannie Mae, Freddie Mac helps insure that a large supply of mortgages will be available for qualified low to middle income homebuyers. They do this by purchasing from lenders the vast majority of all mortgages issued. Freddy and Fannie insure these mortgages against default, and bundle them together with a whole bunch of other mortgages of similar amounts and terms in order to sell them on the secondary market in what’s called mortgage-backed securities.

Freddie came into being in 1970, two years after Lyndon Johnson let Fannie Mae go public in order to raise funds for the Vietnam War. Freddie was created so that Fannie did not become a monopoly, and like Fannie before it, became a public company in 1989. Fannie and Freddy agree to buy mortgages from approved lenders as long as they’ve been issued to pre-qualified buyers and the loans conform to their limits, which as of 2018, is $453,100 in most of the US, and $679,650 in high cost areas like New York and San Francisco.

The global economic meltdown altered the administration of Freddie and Fannie; because of the vast number of mortgage defaults, the pair became insolvent, and the federal government had to inject $187.5 billion into them to keep them afloat. Since 2008 Freddie has been under control of the Federal Housing Finance Agency, and though it’s hugely profitable again, it’s required to divert nearly all its profits back to the US Treasury, a situation that may not end anytime soon.

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