Freddie Mac: Empowering Homeownership Through Mortgage Backed Securities§
Freddie Mac, formally known as the Federal Home Loan Mortgage Corporation, was established in 1970 with the ground-breaking mission of bolstering homeownership in the United States. Freddie Mac operates by repurchasing mortgages directly from lenders, which are then packaged into mortgage-backed securities and sold on the secondary mortgage market.
How Freddie Mac Operates§
This process involves creating a lucrative market for lending institutions, by turning their mortgage assets into cash which can then be used to issue new loans. This cycle of repurchasing and securitizing enhances the liquidity of the housing finance system, benefitting lenders by reducing their risk and consumers by broadening access to home financing options.
Lenders typically initiate the loan process by evaluating and approving prospective homebuyers. Once these mortgages are originated, Freddie Mac steps in to buy these loans from the lenders. Subsequently, Freddie Mac pools these loans together and resells them as securities to investors in the secondary market.
Achieving Affordable Homeownership§
Over the recent years, Freddie Mac has taken significant strides to aid families from low and middle-income backgrounds in achieving the dream of homeownership. By setting affordable lending standards and initiatives, Freddie Mac ensures that more families benefit from accessible mortgage opportunities and sustainable home purchases.
Revenue Model§
Freddie Mac generates revenue by charging a guaranteed fee on the mortgages it purchases and securitizes. These guaranteed fees compensate for the risk associated with guaranteeing principal and interest payments on the securities’ assets it sells. This guarantees steady operation funds, further fueling Freddie Mac’s efforts to extend homeownership opportunities.
In conclusion, Freddie Mac’s innovative participation in the secondary mortgage market not only transforms the symmetry of purchasing home loans but also contributes to a stable and more inclusive housing market, thereby democratizing homeownership in America.
Related Terms: Fannie Mae, Mortgage, Secondary Market, Home Loans, Securities.
