Federal Home Loan Mortgage Corporation
Posted on:3/30/2006
| The Federal Home Loan Mortgage Corporation ("Freddie Mac") NYSE: FRE is a stockholder-owned, publicly-traded company chartered by the United States federal government in 1970 to purchase mortgages and related securities, and then issue securities and bonds in financial markets backed by those mortgages in secondary markets. |
The Federal Home Loan Mortgage Corporation ("Freddie Mac") NYSE: FRE is a stockholder-owned, publicly-traded company chartered by the United States federal government in 1970 to purchase mortgages and related securities, and then issue securities and bonds in financial markets backed by those mortgages in secondary markets. Freddie Mac, like its competitor Fannie Mae is regulated by the Office of Federal Housing Enterprise Oversight (OFHEO) in the United States Department of Housing and Urban Development.
Freddie Mac makes money by charging a guarantee fee which is usually a small part of the interest payment of the loans they have securitized into bonds. (For example, Freddie Mac may purchase a loan with a rate of 5.19 percent and put it into a mortgage backed security (MBS) bond which has a 5.0 percent coupon, keeping 0.19 percent as the guarantee fee.) Investors, or purchasers of Freddie Mac MBS, are willing to let Freddie Mac keep this fee in exchange for assuming the credit risk, that is, Freddie's guarantee that the principal of the underlying loan will be paid back regardless of whether the borrower actually repays. This is how Freddie Mac began making money at its inception and continues to do so today. But today, the majority of Freddie Mac's income is derived from the interest rate difference in the corporate debt Freddie Mac issues and the MBS that Freddie Mac's retained portfolio purchases.
The company is based in McLean, Virginia.
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