Why freddie mac

Fannie Mae was first chartered by the U. Today it is a shareholder-owned company that operates under a congressional charter. Freddie Mac was chartered by Congress in as a private company to likewise help ensure a reliable and affordable supply of mortgage funds throughout the country. It looks like your browser does not have JavaScript enabled. Please turn on JavaScript and try again.

Fannie Mae Web Site Fannie Mae Charter Act Freddie Mac was chartered by Congress in as a private company to likewise help ensure a reliable and affordable supply of mortgage funds throughout the country. Prior to the creation of Freddie Mac, the Federal National Mortgage Association also known as Fannie Mae was the only institution that bought real estate mortgages and home loans from issuers primarily banks and savings and loan associations.

Freddie Mac was originally created as a public enterprise and even had stock listed on the New York Stock Exchange. In , during the housing crisis in the U. The U. If you are wondering what Freddie Mac is, you might also be wondering how Freddie Mac works in the housing market. Freddie Mac buys home mortgages, primarily from smaller banks and savings and loans.

There are many types of mortgages , but Freddie Mac cannot buy non-conforming loans. Many home loans on the mortgage market are for 30 years, and without Freddie Mac, the issuing banks would have to keep the mortgage on their books for the entire term of the loan and assume all of the risk of each individual home loan.

Freddie Mac does not make loans directly to home buyers. Instead, Freddie Mac buys bundled mortgages from the banks and others who issue real estate mortgages to homeowners. Definition and Examples of Freddie Mac. How Freddie Mac Works.

What It Means for Individuals. Notable Events. By Terri Williams. Learn about our editorial policies. Updated October 10, Reviewed by Robert C. Article Reviewed February 24, Learn about our Financial Review Board. Key Takeaways Freddie Mac makes mortgage lending less risky. It expands the pool of buyers by making homeownership more affordable. Freddie Mac creates a standardized mortgage-lending process.

It helps to maintain a robust housing marketing. Article Sources. Your Privacy Rights. To change or withdraw your consent choices for TheBalance.

At any time, you can update your settings through the "EU Privacy" link at the bottom of any page. These choices will be signaled globally to our partners and will not affect browsing data. If Fannie and Freddie were allowed to fail, experts agreed that the housing market would collapse even further, paralyzing the entire financial system.

The Bush administration in September responded by placing Fannie Mae and Freddie Mac into government conservatorship, where they remain today.

For years conservative analysts have falsely pointed to these goals as a catalyst for the housing crisis, claiming they pushed Fannie and Freddie to take on unprecedented levels of risk, creating a bubble and a bust in the subprime housing market that sparked the financial catastrophe.

A recent study from the Federal Reserve Bank of St. Louis found that the affordable housing goals had no observable impact on the volume, price, or default rates of subprime loans during the crisis, even after controlling for the loan size, loan type, borrower characteristics, and other factors. Federal Reserve Economist Neil Bhutta reached a similar conclusion in , finding that the affordable housing goals had a negligible effect on Fannie and Freddie lending during the housing bubble. The Alt-A loans that drove their losses were typically made to higher-income households and thus did not qualify for the affordable housing goals.

While Fannie and Freddie did hold some subprime mortgage-backed securities in their investment portfolios—many of which qualified for the affordable housing goals—these investments lagged behind the rest of the market and made up only a tiny fraction of total subprime lending during the housing bubble. Much better, but both companies still have a very long way to go. Thanks in part to rising home prices, Fannie Mae in August posted its largest quarterly profit since the crisis began, marking its second consecutive profitable quarter.

Meanwhile, Freddie Mac reported a quarterly profit for the fifth time since the crisis began. The improved finances at both companies led the U. Treasury Department in August to rework the terms of the government bailout. Under the previous agreement, Fannie and Freddie drew money from the Treasury Department as needed to bolster its capital reserves.

In exchange, the companies issued preferred stock to the government on which they paid a mandatory 10 percent dividend. While the worst of the crisis appears to be over, Fannie and Freddie are a long way from repaying their debt. Meanwhile, as the government continues to play a central role in the day-to-day operations of Fannie and Freddie, the continued uncertainty has led many key staff to leave and has caused an underinvestment in necessary infrastructure and systems.

With the federal government backing nearly every home loan made in the country today, almost everyone agrees that the current level of support is unsustainable in the long run, and private capital will eventually have to assume more risk in the mortgage market.