Freddie Mac

Freddie Mac is a shareholder-owned corporation whose people are dedicated to improving the quality of life by making the American dream of decent, accessible housing a reality. We accomplish this mission by linking Main Street to Wall Street--purchasing, securitizing and investing in home mortgages, and ultimately providing homeowners and renters with lower housing costs and better access to home financing. Since our inception, Freddie Mac has achieved more than 30 consecutive years of profitability and financed one out of every six homes in America. The U.S. Congress creates the Federal Home Loan Mortgage Corp., nicknamed Freddie Mac. The first conventional mortgage security, the Mortgage Participation Certificate (PC), is introduced. Freddie Mac distributes 15 million shares of participating, preferred nonvoting stock to individual member savings institutions. The company's 30th anniversary marks an equally long unbroken string of profitability. An agreement is reached that requires stock to be registered with the Securities and Exchange Commission for the first time. Freddie Mac, a stockholder-owned corporation, is regulated by the U.S. government. Created to provide a continuous, reliable, and low-cost flow of credit to finance housing for the American people, the agency is a dominant player in the secondary mortgage market. Freddie Mac's primary business is to buy mortgages from lenders, package the mortgages into securities, then guarantee and sell the securities to investors. The quasi-government corporation's impact on the mortgage finance industry is immense and often draws fire from private sector competition. The United States Congress created the charter for the Federal Home Loan Mortgage Corp. in 1970. Nicknamed Freddie Mac, the entity was charged with creating a national secondary market for conventional home mortgages. By doing so, Congress hoped to level out the disparity among regions of the nation in regard to availability of and interest rates on home mortgages. To get off the ground, Freddie Mac raised $100 million by selling nonvoting stock to the 12 Federal Home Loan Banks. The federal government's interest in the housing market was not a new thing. The Federal National Mortgage Association, or Fannie Mae, was initially established by Congress, in 1938, to buy FHA-insured loans and support government-subsidized housing programs. Operating as a private, for-profit corporation beginning in 1968, Fannie Mae retained most of the mortgages it bought in its own portfolio. Freddie Mac, on the other hand, would not. In 1971, Freddie Mac offered its first conventional mortgage security, the Mortgage Participation Certificate (PC). Freddie Mac bought mortgages from lenders, primarily savings and loan associations (S&Ls), and then bundled them together in the form of mortgage-backed securities that were sold to investors. The holders of the PCs--most often institutional investors--received monthly principal and interest payments based on the underlying mortgages. Lenders traditionally made their profit from interest payments on the home mortgages in their portfolios. "But with the advent of financial deregulation and volatile interest rates, lenders often had to pay more for mortgage capital than the mortgages were yielding in interest," wrote Mary-Margaret Wantuck for Nation's Business in 1983. The secondary market let lenders sell the mortgages and related risks and, in turn, bring in more capital to lend to potential home buyers. The holders of mortgage-backed securities benefited as well, receiving returns exceeding many other investment products available in the 1970s and early 1980s. Other players inhabited the secondary market. Conduits, or private participants, concentrated on buying mortgages that fell outside the realm of the quasi-government agencies Freddie Mac and Fannie Mae. The pair were subject to restrictions on the size of loans they could purchase: the upper limit was $108,300 in 1983.