Freddie Mac is a U.S. government-sponsored company that insures and buys for resale home mortgages. Freddie Mac and the similar Fannie Mae are the major backers of home mortgages in the United States. A Freddie Mac loan is a home mortgage that has been ensured by Freddie Mac.
Function of Freddie Mac
The Freddie Mac website states the company is in two lines of business. Freddie Mac provides liquidity in the mortgage market by providing loan guarantee and the purchase of originated mortgages for packaging into mortgage-backed securities -- MBS. Freddie Mac also earns income by holding its own portfolio of mortgage-backed securities. Freddie Mac was originally called the Federal Home Loan Mortgage Corporation and was formed by Congress in 1970 to increase the market for mortgages, promoting financing of home ownership.
Freddie Mac supports the mortgage industry and home ownership by purchasing home loans after lenders have closed the loans. To be purchased by Freddie Mac, loans must meet Freddie Mac's underwriting guidelines for credit and size of the loan. Freddie Mac does not make loans directly. It provides an implied government guarantee on the loans by purchasing mortgages that meet the company's standards. Loans that meet the requirements of Freddie Mac -- and Fannie Mae -- are called conforming mortgages.
Freddie Mac is directed by the Federal Housing Finance Agency (FHFA). The FHFA was created in 2008 when Freddie and Fannie were in financial trouble from the financial and real estate crises. As of 2010, the FHFA maintains a conservatorship over the two government-sponsored mortgage companies. The U.S. Department of Housing and Urban Development (HUD) also has authority over Freddie Mac in the matters of providing fair housing opportunities.
A Freddie Mac loan is a home mortgage that has been purchased from the lender by Freddie Mac and packaged into a MBS. The original lender or another company may continue to service the loan, collecting the payments. If the homeowner defaults on the mortgage and the home is foreclosed, Freddie Mac will become the owner of the property. Freddie Mac provides a tool on its website where a homeowner can find out if Freddie own his mortgage.