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 3criticism 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 4freddie mac vs fannie maefannie 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 2fannie 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 