Legal Definitions - Freddie Mac

Freddie Mac stands for the Federal Home Loan Mortgage Corporation.

Freddie Mac is a government-sponsored enterprise (GSE) in the United States. Its primary role is to provide stability and liquidity to the nation's mortgage market. It does this by purchasing mortgages from banks and other lenders, packaging these mortgages into securities, and then selling those securities to investors. This process allows lenders to replenish their funds, enabling them to make more home loans available to consumers. Essentially, Freddie Mac helps ensure that there is a continuous supply of money for people to borrow when buying homes.

• Example 1: Supporting a Local Bank's Lending Capacity

  Imagine a small community bank that has lent out most of its available funds for home mortgages. To continue offering new loans to other aspiring homeowners, the bank needs more capital. Freddie Mac steps in by purchasing a batch of these existing mortgages from the community bank. This transaction provides the bank with fresh cash, which it can then use to fund new mortgages for other customers, thereby keeping the flow of credit active in the community.

• Example 2: Attracting Investment for Housing

  A large pension fund is looking for stable, long-term investments that generate regular income for its retirees. Freddie Mac pools thousands of individual mortgages it has purchased from various lenders and creates mortgage-backed securities (MBS). The pension fund can then buy these MBS from Freddie Mac. This allows the pension fund to invest in the housing market indirectly, receiving payments as homeowners pay their mortgages, while Freddie Mac's involvement helps standardize these investments, making them attractive to a wide range of investors.

• Example 3: Impact on Homebuyer Access and Rates

  A young couple is looking to buy their first home and needs an affordable mortgage. Because Freddie Mac consistently buys mortgages from lenders, it creates a robust and competitive market for home loans. Lenders know they can sell their mortgages to Freddie Mac, which reduces their risk and ensures they have funds to lend. This consistent demand for mortgages from Freddie Mac helps to keep mortgage interest rates competitive and ensures that money is generally available for homebuyers across the country, making homeownership more accessible.