The Federal Home Loan Mortgage Corporation (FHLMC), better known as Freddie Mac is an enterprise sponsored by the US government which was created in 1970 by the Congress. Freddie Mac performs one of the most important roles in the country's housing finance system. It provides complete stability, affordability and liquidity to the mortgage market.
Freddie Mac was basically created to expand the secondary markets for mortgage in the United States. Along with Fannie Mae, the FHLMC buys and pools the mortgages on the secondary market and then sells them to investors in the open market as mortgage-backed security. It provides liquidity to mortgage companies that provide loans for finance housing and other banks, savings and loans. In this article we have tried to answer some of the FAQs on Freddie Mac which are usual concerns among people.
The FHLMC, better known in the industry as Freddie Mac, forms an important pillar in the country's housing finance system. Freddie Mac buys mortgages from lenders and either packages the loans into mortgage-backed securities or holds these into their portfolios. Lenders use the cash that is raised in this transaction for further lending to other borrowers.
Freddie Mac and Fannie Mae are two of the largest financial organizations of the world and are estimated to have about $5 trillion worth of mortgage assets. In spite of all this, very few people understand the importance about what actually Freddie Mac does for the home owners, or what role they have in the future of the mortgage market.
The most important function of Freddie Mac is to provide liquidity to the country's mortgage financial system. It buys home loans made by private companies, turn them into MBS, and ensure the timely payment of the interest along with the principal to investors. Freddie Mac also holds some home loans and mortgage securities in their mortgage portfolios.
Since Freddie Mac guarantees payments in case of any kind of defaults and investors do not have to worry about the credit risks and hence makes mortgage industry a very attractive industry to invest in.
The main objective of both Freddie Mac and Fannie Mae are almost the same, i.e. to provide stability, liquidity and affordability to the mortgage market. The main difference between the two lies in their origin.
Both the entities were chartered to serve different purposes. The Fannie Mae was created by the US government in 1938 and its main purpose was to encourage lending during the Great Depression by buying mortgages from private organizations. The US Congress later created the Freddie Mac in 1970 to further increase the availability of mortgages.
While most of the people never interact with the Freddie Mac directly, the two government sponsored enterprises, Freddie Mac and Fannie Mae, facilitate the buyers with several advantages. Some of the key benefits of Freddie Mac include -
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