The Federal Home Loan Mortgage Corporation or Freddie Mac as it is called is a government backed enterprise in the United States. The main function of Freddie Mac is to deal in the secondary mortgage market by offering mortgage backed securities to investors in the open market. Freddie Mac allows an increase in the supply of money for mortgage lending and also creates wealth for purchase of new homes.

• In the beginning of 1900’s the Federal National Mortgage Association (Fannie Mae) was the only institution that bought mortgages from depository institutions which in turn encouraged mortgage lending. However in 1968 Fannie Mae split in two and one was a private entity Freddie Mac while the other was a publicly financed institution. The publicly financed institution was called Government National Mortgage Association or Ginnie Mae.
• In order to provide competition to Fannie Mae and to increase the amount of wealth available for home ownership Congress then established the Federal Home Loan Mortgage Corporation or Freddie Mac. The purpose of this private corporation was the same as that of Fannie Mae; to provide expansion in the secondary mortgage market and mortgage backed securities by acquiring mortgages made by savings and loans associations and other financial depository institutions.
• Freddie Mac’s main way of making money was to charge a fee on the loans that it has acquired. This meant that it converted the loans into mortgage backed securities and guaranteed full payback of the loan regardless of whether the principal and interest is actually repaid by the borrower. This may be one of the reasons for the building of the housing bubble in the United States because of a strong secondary market in mortgages and availability of funds for new homes.
• There is a widespread misconception that Freddie Mac is government backed and is thus a safe institution to do business with. However this is not true since it is under the conservatorship of Federal Housing and Finance Agency (FHFA). Nevertheless this misconception has resulted in people and investors trusting in Freddie Mac. The 2002 Nobel laureate in economics has called Freddie Mac and Fannie Mae as “implicitly taxpayer-backed agencies.”
• Freddie Mac and other GSE’s are only allowed to buy conforming loans which mitigates competition in the market for non conforming loans. Conforming loans are those that meet a certain criteria as laid down by government sponsored agencies or GSEs. Therefore it appeared as if these agencies were doing well and working in an ethical manner. This proved out to be false and Freddie Mac and Fannie Mae were given support by the Federal Reserve and the Treasury department by owning stock and giving low-interest loans to them.
• Fannie Mae and Freddie Mac were also common names in popular politics and have given campaign contributions worth hundreds of thousands of dollars to politicians. Some of the politicians are Barack Obama and Hillary Clinton who received more than $175,000 combined together. Finally when Fannie Mae and Freddie Mac were put under the conservatorship of FHFA, the CEO and the Board of directors were replaced. This was in wake of the sub-prime mortgage crisis and the recession that was bleeding the finances of many large companies and ruining the housing market.

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