Freddie Mac - The Federal Home Loan Mortgage Corporation (FHLMC)

Contrary to popular opinion Freddie Mac is not part of the McDonalds product line. Rather, it is a stockholder-owned corporation authorized to make loans and loan guarantees. The FHLMC was created in 1970 by the U.S. government to expand the secondary market for mortgages in the US. Along with other GSEs (government sponsored enterprises) , Freddie Mac buys mortgages on the secondary market, pools them, and sells them as mortgage-backed securities to investors on the open market. This secondary mortgage market increases the supply of money available for mortgages lending and increases the money available for new home purchases.

Making Money:

Freddie Mac's primary method of making money is by charging a guarantee fee on loans that it has purchased and securitized into mortgage-backed security bonds (MBS). 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 Mac's guarantee that the principal and interest on the underlying loan will be paid back regardless of whether the borrower actually repays.

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