Freddie Mac comes from the FHLMC acronym, which stands for Federal Home Loan Mortgage Corporation, and is a government-owned corporation that purchases mortgages and packages them into mortgage-backed securities. Freddie Mac, like Fannie Mae, is a GSE, or Government-Sponsored Enterprise. Freddie Mac was founded in 1970 to help expand the secondary market for mortgages. This corporation ultimately helps keep capital flowing in the housing market, like Fannie does, by purchasing mortgage-backed securities from investors. These purchasesYou may notice Freddie Mac behaves very similarly to Fannie Mae in regards to the purchasing of Mortgages on the secondary market and turning them into mortgage-backed securities.
What does Freddie Mac Do?
Freddie Mac, like Fannie Mac, purchases Mortgages from banks. The difference between Freddie Mac and Fannie Mac is here: Freddie will purchase these mortgages from investors and smaller banks, while Fannie will purchase from investors and bigger banks. Freddie Mac will then package them into mortgage-backed securities, making available many programs that allow for more people who would have been otherwise unable to apply for home-ownership. One of these programs is called HomeReady. We will be going over HomeReady (Freddie Mac) and HomePossible (Fannie Mae) programs in another blog update.
Freddie Mac has helped reduce and regulate interest rates in the mortgage market as well. This in turn helps making purchasing a home more available to medium-low income households due to the lower interest, but also helps preserve and create additional equity in the home when the value of the home increases after purchase. There are many advantages to this, but all of them result in a more healthy market when it comes to the buying and selling of home mortgages. Additionally, Freddie Mac has programs in place to prevent foreclosures on homes as well, as it popularized the 30-year mortgage system, which made it easier for moderate-income households to be able to afford their home.
In the next update, we will be discussing two of the relatively new programs: HomeReady and HomePossible.