What Does Freddie Mac Stand For

Freddie Mac stands for the Federal Home Loan Mortgage Corporation. It is a business that is classified as a government sponsored enterprise (GSE). The largest GSE in the U.S. is Fannie Mae, or the Federal National Mortgage Association, created in 1938. When the government privatized Fannie Mae in 1968, another GSE was needed to prevent monopolistic conditions.

Freddie Mac was established in 1970, with a goal to enlarge the secondary market for U.S. mortgages. A secondary market is one in which an investor, perhaps a lending agency, purchases a security from a different investor that is not the original issuer of the security. The purchase occurs after the original issuance. The secondary market is sometimes referred to as an aftermarket. The benefit of the secondary market is that it makes a larger amount of money available for mortgages and expands the quantity of funds available for the purchase of homes.

Freddie Mac is currently second only to Fannie Mae as the second-largest buyer of mortgages in the U.S. In conjunction with other GSEs, Freddie Mac purchases mortgages within the secondary market. It combines many of them, and then re-sells them as mortgage-backed securities to investor parties on the market. The organization makes its money by imposing a guarantee fee on any loans that buys and then securitizes into government-backed security bonds. In exchange for charging the guarantee fee, Freddie Mac guarantees a payback on the principal and interest of the purchased loan, no matter what is actually paid by the borrower. Freddie Mac also retains some of its purchased mortgages as part of investment portfolios.

Because of widespread losses in the real estate market, the federal government assumed control of Freddie Mac and Fannie Mae in September 2008. During the third quarter of 2009, Freddie Mac reported a net loss of $5.0 billion. The organization’s net worth was $10.4 billion as of September 30, which included an $8.5 billion increase in accumulated other comprehensive income (AOCI). This increase is attributable to rising values on Freddie Mac’s securities that are available for purchase.