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Freddie Mac was created to increase the success of the secondary mortgage market.

What is Freddie Mac?

Freddie Mac currently operates as a shareholder-owned organization. Freddie Mac and another government-sponsored enterprise, Fannie Mae, fund 80 percent of residential mortgages in the U.S. In 2017, Freddie Mac bestowed $422 billion on mortgage lenders and helped 343,000 first-time buyers secure a home. It also produces cost-effective rents for low- and middle-income households by working with rental property owners to encourage them to cap the rent.

Congress originally authorized Freddie Mac, also known as the Federal Home Loan Mortgage Corp, to certify a stockpile of economical mortgage funds in the U.S. Congress passed the Emergency Home Finance Act in 1970 to allow more Americans to buy homes, providing a mutually beneficial economy for homebuyers and sellers. Congress initiated this act to further develop the mortgage business, but Congress knew it needed an agency designed to protect banks' interest rates.

How does Freddie Mac operate?
Freddie Mac buys mortgages from lenders. From there, it can combine and sell them as mortgage-backed securities or keep the loans in its possession. With money from Freddie Mac, lenders have the means to engage with more borrowers. Through its assistance to lenders, Freddie Mac is responsible for many families' ability to take out a mortgage rather than pay in cash.

How is Freddie Mac different from Fannie Mae?
Fannie Mae, also known as the Federal National Mortgage Association, formed before Freddie Mac. Congress and President Franklin D. Roosevelt established it in 1938, during the Great Depression, to provide lenders with more funds to lend to prospective homebuyers. Fannie Mae's initial success brought forth a new generation of homeowners in the U.S. It became so profitable, in fact, that Congress created Freddie Mac to prevent Fannie Mae from becoming a monopoly.

On the surface, Freddie Mac and Fannie Mae run similar businesses. They are both GSEs that serve to keep lenders prosperous so Americans can continue to take mortgages. The main difference between these two businesses is the types of banks they assist. Fannie Mae works primarily with large, commercial banks. Freddie Mac buys its loans from small banks.

For buyers seeking mortgages for their new homes, they may choose to loan from smaller, local banks. In this instance, there's a possibility these institutions work directly with Freddie Mac to ensure they have enough funds to lend.

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