Federal Home Loan Mortgage Corporation is a government-sponsored enterprise (GSE) controlled by the United States government. It is commonly referred to as Freddie Mac. The organization helps assure that enough money is available for home mortgages.
Freddie Mac does not loan money directly to buyers purchasing a home. Instead, Freddie Mac purchases mortgages from the banks, savings and loan associations, mortgage companies, and other financial institutions that make these loans. Freddie Mac bundles mortgages together and sells them to investors in the form of financial assets called mortgage-backed securities. The investors who own these securities receive principal and interest from the homeowners’ mortgage payments on the loans purchased by Freddie Mac.
Congress created Freddie Mac in 1970 as a private corporation. In 2008, the organization faltered after it had heavily invested in risky mortgages. A credit and financial crisis had begun in 2007, leading to an increase in home foreclosures, the legal procedure by which lenders take over mortgaged properties from borrowers unable to afford their mortgage payments. Freddie Mac owned or guaranteed so many mortgages in the United States that it could not meet its financial obligations. In 2008, U.S. Secretary of the Treasury Henry M. Paulson, Jr., signed an agreement that the government would cover future losses for Freddie Mac, and the organization became government-owned.
In 2019, Freddie Mac and the GSE Federal National Mortgage Association, commonly called Fannie Mae, began to issue a uniform mortgage-backed security (UMBS). The introduction of the new security created a larger, more liquid market—that is, a market in which many people or organizations can quickly buy and sell at a low transaction cost.
