Here, we explore what mortgage bankers do in the process of getting a home loan.
What is Freddie Mac?
Freddie Mac, the informal name of the Federal Home Loan Mortgage Corp., is a U.S. government-sponsored enterprise (GSE) that buys mortgages, combines them with other forms of loans, and sells the debt to investors on the secondary mortgage market. In collaboration with the Federal National Mortgage Association, or Fannie Mae, Freddie Mac’s operations increase the money supply available for mortgages and guarantees mortgages for low- and middle-income homeowners.
Freddie Mac was established in 1970 to help expand the secondary mortgage market in the United States. At the time, Fannie Mae was the only institution that was involved in buying mortgages from depository institutions. This led to an increase in mortgage lending, effectively insuring the mortgage values in the U.S. government, and Congress created Freddie Mac to provide competition.
Freddie Mac makes money by charging a guarantee fee on its purchased loans that have been bundled, or securitized, into mortgage-backed securities (MBS) that provide investors with interest income.
In 2008, Freddie Mac and Fannie Mae owned about half of all mortgages in the U.S. Many of these mortgages turned out to be subprime, and during the financial crisis of 2007-09, these mortgages failed and the government was forced to bail out both agencies before they became insolvent. Although Freddie Mac and Fannie are both owned by their shareholders, they are part of a conservatorship of the U.S. government and pay their profits to the U.S. Treasury. They are limited by the Federal Housing Finance Authority to backing mortgages only up to $424,100 in most states and up to $636,150 in Alaska, Hawaii, Guam, and the U.S. Virgin Islands.
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Freddie Mac example
Just like Fannie Mae, Freddie Mac provides mortgage assistance in times of crisis. In 2017, a series of very powerful hurricanes devastated regions in the U.S. such as Texas and Puerto Rico. Both GSEs suspended mortgage payments, related fees, and delinquency reports to credit bureaus, on mortgages they own for homes impacted by the hurricanes.