Freddie Mac

Financial Dictionary -> Mortgages -> Freddie Mac

Chartered by Congress in 1970, the Freddie Mac (Federal Home Loan Mortgage Corporation FHLMC), is a publicly owned, governmental sponsored enterprise, brought in to existence to keep money liquidity for Mortgage lenders, in order to maintain steady home ownership and housing rental for middle-class Americans. The name it commonly goes by, "Freddie Mac", is an acronym of the full company name, and was put in to place by official means in order for ease of identification.

The Freddie Mac system purchases mortgages from the secondary mortgage market, consolidates them, and then sells them on as mortgage backed securities to the open market for investors to add to their portfolios. These mortgage backed securities are usually very liquid and hold a credit rating similar to United States treasuries.

This secondary mortgage market it operates in results in an increased money supply for mortgage lending and makes the market for new home purchases more liquid. However they have fallen under criticism due to their ties to the United States government, allowing it to borrow money at rates of interest below what other financial institutions can traditionally gain access to. This unfair advantage allows it to issue huge amounts of debt (commonly referred to in the market as agency debt or just agencies), resulting in turn of purchases and an ever expanding portfolio of mortgages. Due to its sheer size, lots of critics believe that this retained portfolio as it is commonly know, poses an extreme risk to the United States economy.

Going by 2007 data the Freddie Mac has revenue of $43.1 billion, and total assets of around $794 billion. However due to the economic collapse in late 2007 onwards, caused by mortgage defaults, the organization reported a $5.977 billion loss in operating income, and around $3.1 billion in net income.