Federal Home Loan Mortgage Corporation (Freddie Mac)

The Federal Home Loan Mortgage Corporation (Freddie Mac) is a U.S. government-sponsored enterprise (GSE) chartered by Congress in 1970 to support liquidity, stability, and access to mortgage credit. It operates in the secondary mortgage market: it buys eligible residential loans from lenders and commonly pools them into mortgage-backed securities (MBS) for sale to investors. Freddie Mac does not originate mortgages or lend directly to homebuyers. ^[1][2]

Purpose and legal framework

Freddie Mac was established under the Federal Home Loan Mortgage Corporation Act, enacted as Public Law 91-351 and approved on July 24, 1970. The charter identifies objectives that include stabilizing the secondary market for residential mortgages, increasing the liquidity of mortgage investments, improving the distribution of capital for residential mortgage financing, and promoting access to mortgage credit throughout the country. It specifically refers to central cities, rural areas, and underserved areas. ^[3]

The company is commonly grouped with Fannie Mae as one of the two large housing-finance enterprises known as the Enterprises. Both are GSEs: privately organized corporations created by federal law to carry out public-policy missions in housing finance. Their federal charters and public roles distinguish them from ordinary mortgage lenders, while their corporate form means they continue to operate as business corporations. ^[4][5]

Freddie Mac’s charter and mission do not mean that the federal government guarantees all of its obligations. The Congressional Research Service (CRS) describes the Enterprises’ special statutory status and their federal support arrangements following the 2008 crisis; the current relationship is shaped by Treasury agreements and Freddie Mac’s ongoing conservatorship. ^[4][5]

Role in the mortgage market

A mortgage lender originates a loan for a borrower in the primary mortgage market. The lender may then sell an eligible loan to Freddie Mac in the secondary market, receiving cash or, in some transactions, securities. The proceeds can provide the lender with funding to make additional loans. Freddie Mac states that it purchases single-family and multifamily residential mortgages from lenders and does not lend directly to borrowers. ^[1][2]

This purchase-and-resale function can help distribute mortgage funding beyond the institutions that initially make loans. By buying loans from lenders, Freddie Mac provides a channel for mortgage assets to be converted into funds that can be used for further lending. Its activities therefore connect mortgage originators with capital-market investors, although the company’s own operations and guarantees also involve credit, market, and operational risks. ^[1][2]

Freddie Mac buys qualifying mortgages under its eligibility and underwriting requirements. Its business includes both single-family and multifamily residential lending. Multifamily loans generally finance properties with multiple residential units; their inclusion means the company’s secondary-market role extends beyond mortgages on individual homes. Freddie Mac’s charter provides the broad statutory framework, while its published selling and servicing guidance sets operational requirements for participating lenders and servicers. ^[1][3]

Mortgage-backed securities

Freddie Mac commonly pools similar mortgages and creates MBS backed by those loan pools. In a typical pass-through structure, borrowers’ principal and interest payments flow through the security to investors, subject to the applicable security terms. Freddie Mac describes its securitization process as converting mortgage pools into securities and states that it guarantees principal and interest payments on its securities. ^[2]

The sale of MBS allows investors to fund mortgage assets and, in many cases, transfers interest-rate and liquidity exposure to third parties. It does not eliminate every risk: borrowers may default, and changes in interest rates can affect refinancing, prepayment timing, and security values. Freddie Mac also describes programs that transfer some mortgage credit risk to third-party investors. ^[1][2]

MBS differ from a direct mortgage loan. Investors generally hold rights to cash flows from a pool of mortgages under the terms of the security rather than making a loan directly to a particular homeowner. Freddie Mac’s guarantee is an important feature of its securities, but it should be distinguished from a direct guarantee of every mortgage borrower’s debt. ^[2]

Freddie Mac also retains mortgage assets in its investment portfolio, in addition to purchasing loans for securitization and sale. The relative scale and composition of the company’s activities can change over time under law, regulatory direction, and conservatorship requirements. Its corporate reports and regulatory filings provide period-specific information about its assets, guarantees, funding, and risks. ^[1][5]

Regulation and conservatorship

The Federal Housing Finance Agency (FHFA) is Freddie Mac’s regulator and conservator. On September 6, 2008, the FHFA director placed Freddie Mac and Fannie Mae into conservatorship, with the consent of their boards. The agency said the action followed a severe deterioration in housing markets that had damaged the Enterprises’ financial condition and threatened their ability to fulfill their missions without government intervention. ^[5]

Conservatorship is a statutory arrangement under which FHFA exercises extensive authority over the company. FHFA describes its conservator role as including the powers of management, boards, and shareholders, and states that the Enterprises continue to operate as business corporations. The arrangement is intended to stabilize a troubled institution; it is not the same as a completed liquidation or a return to ordinary independent corporate governance. ^[5][6]

The 2008 Housing and Economic Recovery Act established FHFA and gave it authority to place regulated entities into conservatorship or receivership. Treasury entered into Senior Preferred Stock Purchase Agreements with Freddie Mac and Fannie Mae to provide financial support and help ensure they could remain solvent and continue supporting mortgage-market liquidity. FHFA publishes information about draws on those commitments and payments to Treasury. ^[5][6]

Freddie Mac remains in conservatorship. FHFA sets priorities and expectations through an annual Conservatorship Scorecard, which covers areas such as the Enterprises’ core mission responsibilities, safe and sound operation, and work relevant to a possible eventual exit from conservatorship. The existence of scorecards and capital rules does not, by itself, establish a date or terms for ending conservatorship. ^[7]

Affordable housing responsibilities

Freddie Mac’s charter includes support for mortgage-market access, including for low- and moderate-income families and underserved areas. Its activities are also subject to affordable-housing goals established and overseen by FHFA. The agency publishes Freddie Mac’s annual housing-activity reports and related materials, which provide a record of reported activity against applicable goals. ^[3][8]

The company also reports work under the Duty to Serve program, which addresses rural housing, manufactured housing, and affordable housing preservation. These responsibilities sit alongside its market-liquidity mission; they do not mean that Freddie Mac directly provides a mortgage to every eligible borrower or determines all terms offered by lenders. ^[1]

Assessing whether a particular program meets a housing goal requires the relevant goal definitions, reporting period, and official activity data. Goals and programs may vary by year, so comparisons should use the applicable FHFA materials rather than assume that targets or results remain constant. ^[8]

Relationship to borrowers, lenders, and investors

For a borrower, Freddie Mac is usually not the company that takes the mortgage application or makes the original loan. A bank, credit union, mortgage company, or other lender generally originates the loan and may later sell it to Freddie Mac. A mortgage servicer may continue to collect payments and handle borrower communications after a loan is sold, depending on the arrangements. Freddie Mac’s presence in the secondary market can therefore be less visible to borrowers than the lender or servicer they deal with directly. ^[1][2]

Lenders interact with Freddie Mac under program rules for eligible loans, delivery, representations, and servicing. Investors interact with the company through its debt and mortgage-related securities, subject to each instrument’s terms. Those are different relationships: the sale of a mortgage to Freddie Mac does not necessarily change the borrower’s payment obligations or mean the borrower has become an investor in Freddie Mac securities. ^[1][2]

Significance and continuing policy questions

Freddie Mac is a major component of U.S. housing finance because its purchases and guarantees help connect mortgage lending with capital markets. Its structure also raises continuing public-policy questions about the balance between mortgage-market liquidity, access to housing finance, taxpayer exposure, private capital, and the risks associated with federal support. Congressional and regulatory oversight continues, and significant changes to its status or structure would depend on legal and policy decisions. ^[4][5][7]

Freddie Mac should be distinguished from the Federal Home Loan Bank System, a separate network of institutions that provides funding to member financial institutions. It is also distinct from the Federal Housing Administration, which insures qualifying mortgages rather than performing Freddie Mac’s core secondary-market purchase-and-securitization role. ^[1][9]