The Federal Home Loan Mortgage Corporation (known as Freddie Mac) was created in 1970 to expand the secondary market for mortgages. Previous to this, the Federal National Mortgage Association (known as Fannie Mae) was the only institution in this market.
The secondary mortgage market is when an institution buys secondary mortgages. They then pool them together and sells them to investors on the open market as mortgage-backed securities. This increases the amount of money that is available for mortgages.
In theory, this lowers the risk for a bank or financial institution of holding the mortgage because of the aggregation process. However, this process undoes the connection between lender and borrower, such that the institution that originally granted the mortgage had no incentive to make sure the borrower can pay the loan. Freddie Mac assumes the credit risk on the mortgages in exchange for charging a guarantee fee.
Freddie Mac’s stock plummeted to $1 in September of 2008 as a result of the economic crisis, then dropped another 50% by June of 2010. At that point Freddie Mac was delisted.
Today Freddie Mac provides credit guarantee for residential mortgages and invests in mortgage loans and mortgage-related securities in the U.S. Freddie Mac has 5,000 employees and had $80.64 billion in revenue in 2012.
Freddie Mac
The Federal Home Loan Mortgage Corporation (known as Freddie Mac) was created in 1970 to expand the secondary market for mortgages. Previous to this, the Federal National Mortgage Association (known as Fannie Mae) was the only institution in this market.
The secondary mortgage market is when an institution buys secondary mortgages. They then pool them together and sells them to investors on the open market as mortgage-backed securities. This increases the amount of money that is available for mortgages.
In theory, this lowers the risk for a bank or financial institution of holding the mortgage because of the aggregation process. However, this process undoes the connection between lender and borrower, such that the institution that originally granted the mortgage had no incentive to make sure the borrower can pay the loan. Freddie Mac assumes the credit risk on the mortgages in exchange for charging a guarantee fee.
History
Freddie Mac’s stock plummeted to $1 in September of 2008 as a result of the economic crisis, then dropped another 50% by June of 2010. At that point Freddie Mac was delisted.
Today Freddie Mac provides credit guarantee for residential mortgages and invests in mortgage loans and mortgage-related securities in the U.S. Freddie Mac has 5,000 employees and had $80.64 billion in revenue in 2012.
