Glossary

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Freddie Mac

Freddie Mac is the smaller of two government-sponsored enterprises (GSEs) created by Congress. (The larger one is Fannie Mae.) It purchases and sells residential mortgages that conform to the guidelines it has established. For this reason, loans bought and sold by Freddie Mac are called “conforming” mortgages. Freddie Mac is also known as the Federal Home Loan Mortgage Corporation.

History

Freddie Mac was created in 1970 by the federal government to increase the availability of mortgage funding and expand homeownership in the US. In 2008, both GSEs were taken over by the US government and are now monitored by the United States Congress.

Though the company participates in the mortgage lending industry, Freddie Mac does not lend directly to home buyers.  Instead, it purchases loans from lenders so that they can in turn offer more mortgages to home buyers.  When a buyer finances the purchase of his or her home with a conforming loan, Freddie Mac can purchase the mortgage, bundle it with other home loans and sell shares to investors who profit from the interest that the homeowners pay on their mortgages. This process is called “securitization.”  

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