What Is the Federal Home Loan Mortgage Corp. (FHLMC) / Freddie Mac?

The Federal Home Loan Mortgage Corp. (FHLMC), or Freddie Mac, is a stockholder-owned, government-sponsored enterprise (GSE) chartered by Congress in 1970 to keep money flowing to mortgage lenders, which in turn supports homeownership and rental housing for middle-income Americans.

Freddie Mac purchases, guarantees, and securitizes home loans and is a mainstay of the secondary mortgage market.

Key Takeaways

  • The Federal Home Loan Mortgage Corp. (FHLMC), or Freddie Mac, is a stockholder-owned, government-sponsored enterprise (GSE).
  • Freddie Mac is designed to support of homeownership for middle-income Americans. 
  • It buys loans from mortgage lenders, then combines them and sells them as mortgage-backed securities.
  • Fannie Mae and Freddie Mac are both publicly traded GSEs.
  • Fannie Mae buys mortgage loans from major retail or commercial banks; Freddie Mac buys its loans from smaller banks. 

History of Freddie Mac

Freddie Mac was created when Congress passed the Emergency Home Finance Act in 1970. A wholly owned subsidiary of the Federal Home Loan Bank System (FHLBS), it represented an attempt to reduce interest rate risk for savings and loans associations and smaller banks.

In 1989, under the Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA), Freddie Mac underwent a reorganization. It became a publicly owned company, with shares that could trade on the New York Stock Exchange.

In 2008, during the financial crisis sparked by the subprime mortgage meltdown, the U.S. government—specifically, the Federal Housing Finance Agency—took over the Federal Home Loan Mortgage Corp. Though Freddie Mac is gradually transitioning toward independence, it remains under federal conservatorship.

How Freddie Mac Works

The Federal Home Loan Mortgage Corp., or Freddie Mac, was created to enhance the flow of credit to different parts of the economy. Along with Fannie Mae, it is a key player in the secondary mortgage market.

Freddie Mac doesn’t originate or service home mortgages. Rather, it buys home loans from banks and other commercial mortgage lenders (giving these institutions funds that they can then use to finance more loans and mortgages). These loans must meet certain standards that Freddie Mac sets.

After purchasing a large number of these mortgages, Freddie Mac either holds them in its own portfolio or combines and sells them as mortgage-backed securities (MBS) to investors who are seeking a steady income stream. Either way, it "insures" these mortgages—that is, it guarantees the timely payment of principal and interest on the loans. As a result, securities issued by Freddie Mac tend to be very liquid and carry a credit rating close to that of U.S. Treasuries.

Criticism of the Federal Home Loan Mortgage Corp. (FHLMC)

Freddie Mac has come under criticism because its ties to the U.S. government allow it to borrow money at interest rates lower than those available to other financial institutions. With this funding advantage, it issues large amounts of debt (known in the marketplace as “agency debt” or “agencies”), and in turn purchases and holds a huge portfolio of mortgages known as its “retained portfolio.”

Critics have argued that the unchecked growth of Freddie Mac and Fannie Mae led to the credit crisis of 2008 that plunged the U.S. into the Great Recession. In response, advocates of the enterprises argue that, while Freddie and Fannie made bad business decisions and held insufficient capital during the housing bubble, their portfolios made up only a tiny fraction of total subprime loans.

Freddie Mac vs. Fannie Mae 

Fannie Mae (Federal National Mortgage Association or FNMA) was created in 1938 as part of an amendment to the National Housing Act. It was considered a federal government agency, and its role was to act as a secondary mortgage market that could purchase, hold, or sell loans that were insured by the Federal Housing Administration. Fannie Mae stopped being a federal government agency and became a private-public corporation under the Charter Act of 1954.

Fannie Mae and Freddie Mac are very similar. Both are publicly traded companies that were chartered to serve a public mission. The main difference between the two comes down to the source of the mortgages they buy.

Fannie Mae buys mortgage loans from major retail or commercial banks, while Freddie Mac buys its loans from smaller banks, often called “thrift banks” or “savings and loan associations,” that are focused on providing banking services to communities.

Frequently Asked Questions (FAQs)

How Hard Is it to Get a Freddie Mac Loan?

To get a Freddie Mac loan, you will have to meet the lender's criteria. Depending on the size of the loan, you'll need a certain income as well as credit score to qualify. You can receive a pre-qualification letter that will let you know what amount of loan you can qualify for, but this pre-qualification is not a guarantee.

Do You Need a Down Payment for a Freddie Mac Loan?

You do need a down payment for Freddie Mac loans. However, if you meet certain qualifications, you can get a loan for as little as 3% down.

Does Freddie Mac Have a 3% Down Program?

Freddie Mac does have a program in which you can put 3% down on a home. You must qualify for this program, called HomeOne, which serves first-time buyers or cash-out refinance borrowers. You can use this loan to buy a single-family home, townhome, or condo.

The Bottom Line

The Federal Home Loan Mortgage Corp. (FHLMC), or Freddie Mac, plays a crucial role in the housing market by backing loans to borrowers. Freddie Mac does not lend to borrowers directly, but backs mortgages so that lenders will be encouraged to approve loans. However, you still must meet certain standards to qualify for a mortgage guaranteed by Freddie Mac.
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  1. Federal Housing Finance Agency. "."
  2. Congressional Research Service. "."
  3. The Urban Institute. "." Page 2.
  4. Center for American Progress. "."
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