Understanding Freddie Mac

Freddie Mac, formally known as the Federal Home Loan Mortgage Corporation (FHLMC), plays a pivotal role in the U.S. residential mortgage market. Established by Congress in 1970, its primary purpose is to expand the secondary mortgage market by securitizing mortgages, thereby ensuring that lenders have enough funds to provide new loans for home buyers.

What Does Freddie Mac Do?

Freddie Mac buys mortgages on the secondary market, pools them, and sells them as mortgage-backed securities to investors on the open market. This process provides liquidity, stability, and affordability to the United States housing market.

Freddie Mac Formula

While there isn’t a formula per se that encapsulates Freddie Mac's operations, its impact on the secondary mortgage market can be measured by its ability to increase the availability of mortgage funds, reduce home mortgage rates, and support home ownership and rental housing.

Example of Freddie Mac at Work

Consider a scenario where a potential homebuyer secures a mortgage from a local bank. This bank, in turn, can sell this mortgage to Freddie Mac. Once Freddie Mac purchases the mortgage, it pools it with other similar mortgages. This pool of mortgages is then sold as mortgage-backed securities to investors, thus providing the bank with the capital to lend to more homebuyers. This sequence demonstrates the vital role Freddie Mac plays in maintaining a continuous flow of funding for mortgages in the U.S.

Importance of Freddie Mac

Freddie Mac is integral to maintaining the stability and accessibility of home financing. It supports a robust secondary market which allows banks to reinvest their assets into more lending opportunities, aiding in national economic stability and growth. Additionally, Freddie Mac helps moderate mortgage rates and provides numerous home buying opportunities for Americans, underpinning the overall health of the real estate market.