Freddie Mac

Federal Home Loan Mortgage Corporation (Freddie Mac)
	File:FreddieMacLogo.svg
Company type	Government-sponsored enterprise and public company
Traded as	Template:OTCQB
Industry	Financial services
Founded	1970
Headquarters	Tysons, Virginia, U.S.; (McLean mailing address)
Products	Mortgage-backed securities
Revenue	Decrease Template:US$ (2022)
Net income	Decrease Template:US$ (2022)
Total assets	Increase Template:US$ (2022)
Total equity	Increase Template:US$ (2022)
Number of employees	7,799 (January 31, 2023)
Website	freddiemac.com

The Federal Home Loan Mortgage Corporation (commonly known as Freddie Mac or FHLMC) operates as a publicly listed government-sponsored enterprise with its headquarters situated in Tysons, Virginia. Established in 1970 to broaden the secondary mortgage market within the United States, Freddie Mac acquires mortgages, aggregates them into pools, and issues them as mortgage-backed securities (MBS) to investors in the private sector. This approach enhances the availability of funds for mortgage lending and facilitates homeownership across the country. The brand name "Freddie Mac" stems from a shortened form of its full corporate title to aid recognition.

On September 7, 2008, during the financial crisis, the Federal Housing Finance Agency (FHFA) placed Freddie Mac into conservatorship, representing a significant federal intervention in private financial markets. The U.S. Treasury pledged up to $100 billion through investments by purchasing senior preferred stock at an annual dividend rate of 10%. Subsequently, Freddie Mac’s share price plummeted, leading to its removal from the NYSE in 2010 due to prolonged low valuation levels. Nonetheless, the recovery of the housing sector eventually restored Freddie Mac’s profitability.

As of 2023, Freddie Mac holds the No. 45 position on the Fortune 500 ranking by revenue and oversees assets totaling $3.208 trillion, underscoring its substantial role within the financial services sector.

History

Between 1938 and 1968, the Federal National Mortgage Association (Fannie Mae) was the exclusive purchaser of mortgages from depository institutions—primarily savings and loan associations—thereby promoting mortgage lending with implied government backing. In 1968, Fannie Mae underwent a division into a private company and a government-backed institution. The privatized Fannie Mae continued buying mortgages without explicit government guarantees, while the publicly funded Government National Mortgage Association (Ginnie Mae) provided explicit guarantees on securities secured by government-insured loans.

To offer competition to the newly privatized Fannie Mae and expand mortgage financing options, Congress created the Federal Home Loan Mortgage Corporation (Freddie Mac) in 1970 as a private entity. Freddie Mac’s charter was designed similarly to that of Fannie Mae: to grow the secondary mortgage market by acquiring mortgages from savings and loan associations as well as other depository institutions. Initially, ownership rested with twelve Federal Home Loan Banks, and governance was under the Federal Home Loan Bank Board.

The enactment of the 1989 Financial Institutions Reform, Recovery and Enforcement Act of 1989 ("FIRREA") introduced uniform regulatory standards for both organizations, ended Freddie Mac’s association with the Federal Home Loan Bank System, dissolved the Federal Home Loan Bank Board, and established new supervisory bodies. Freddie Mac instituted an eighteen-member board overseen by HUD, while the Federal Housing Finance Board was created to supervise Federal Home Loan Banks.

Starting in 1995, Freddie Mac began earning affordable housing credits through purchases of subprime securities; by 2004, HUD encouraged expanding these efforts further. Ultimately, amid the financial turmoil of 2008, Freddie Mac entered federal conservatorship on September 7 of that year.

Business

Freddie Mac primarily earns income by imposing a guarantee fee on the loans it acquires and packages into mortgage-backed security (MBS) bonds. This fee compensates Freddie Mac for taking on the credit risk, ensuring repayment of principal and interest even if borrowers default. Such a financial assurance makes Freddie Mac MBS more appealing, allowing them to be traded within the "to-be-announced" (TBA) market.

Conforming loans

Freddie Mac, along with other government-sponsored enterprises (GSEs), is authorized solely to purchase conforming loans, which restricts secondary market demand for loans that do not meet these criteria. This limitation generally results in higher costs for borrowers seeking non-conforming loans, often adding 0.25% to 0.5% or more to interest rates depending on prevailing market conditions. The FHFA, which succeeded OFHEO, annually determines the conforming loan limits by tracking changes in home prices. Loans surpassing these thresholds are designated as jumbo loans. In high-cost regions such as Alaska, Hawaii, Guam, and the US Virgin Islands, conforming loan limits are set 50% higher, with additional incremental increases for properties containing two to four units. During the housing crisis, temporary adjustments were made to these limits.

No explicit government guarantees

Freddie Mac clearly communicates that its securities, including interest payments, do not carry a guarantee from the United States government or any federal agency aside from Freddie Mac itself. These securities are not obligations of the federal government and lack any government-backed repayment assurances. This distinction is explicitly stated in the legislation authorizing Freddie Mac, on the securities themselves, and in the company’s official disclosures.

Perceived guarantees

A significant number of investors assume that FHLMC securities have an implicit federal guarantee and expect government intervention to prevent default scenarios. Nobel Laureate Vernon L. Smith described both FHLMC and FNMA as "implicitly taxpayer-backed agencies," while The Economist highlighted their "implicit government guarantee." In 2001, Dan L. Crippen, then director of the Congressional Budget Office, testified that debt and mortgage-backed securities issued by GSEs are valued more highly than comparable private-sector securities due to this perceived federal support.

Government subsidies

While FHLMC does not receive direct federal funding, it benefits from substantial unpriced government subsidies. According to estimates by the Congressional Budget Office, these subsidies amount to approximately $6.5 billion annually, representing costs borne by taxpayers despite no direct cash transfers or formal guarantees.

The mortgage crisis beginning late 2007

As private-label mortgage-backed securities (MBS) became increasingly issued by mortgage originators, government-sponsored enterprises (GSEs) lost their control over underwriting standards. Competition from private securitizers diminished GSEs’ market influence and contributed to a deterioration in loan quality—a critical element leading up to the financial crisis.

Investment banks securitized riskier loans but retained only minimal exposure to associated risks, unlike GSEs that guaranteed their MBS performance. Although Freddie Mac was limited to purchasing conforming loans subject to stringent underwriting guidelines, rising interest rates after 2003 motivated lenders to pursue higher-risk mortgages and private-label MBS products in order to maintain profitability. This shift expanded lending by relaxing standards and introducing riskier offerings such as adjustable-rate mortgages (ARMs).

In an effort to recover market share lost to private-label securitization (PLS), GSEs eased their underwriting requirements under pressure from shareholders. This contrasted with FHA/Ginnie Mae programs which maintained stricter standards but consequently lost market share.

The rapid growth of PLS combined with insufficient regulation resulted in an oversupply of low-cost housing finance. By 2006, increasing defaults—particularly on ARMs—sparked a wave of foreclosures that caused home prices to fall and raised losses for GSEs that backed most U.S. mortgages. In response, during 2008 the Treasury Department and Federal Reserve provided low-interest loans to Fannie Mae and Freddie Mac and removed restrictions on Treasury stock purchases. Despite these interventions, their stock values dropped by more than 90% within one year.

Mortgage Rate Survey

Freddie Mac issues the Primary Mortgage Market Survey (PMMS) on a weekly basis, detailing the national average mortgage interest rates for conventional, conforming, fully amortizing home purchase loans with a 20% down payment and strong borrower credit profiles. This survey highlights principal loan types such as 30-year and 15-year fixed-rate mortgages, with updated rates published every Thursday.

Initiated in April 1971 with the average rate for 30-year fixed mortgages, the PMMS later incorporated the 1-year adjustable-rate mortgage (ARM) in 1984 and the 15-year fixed-rate mortgage in 1991. The 5/1 hybrid ARM was introduced in 2005 but was discontinued in November 2022, along with the 1-year ARM which ceased publication in January 2016.

Prior to November 2022, Freddie Mac gathered PMMS data through lender surveys representing a diverse range of institutions. To enhance precision, the organization transitioned to utilizing actual loan application information obtained from its automated underwriting platform. The data collection period covers from the Thursday before the prior week through the Wednesday preceding the release date.

Changes in PMMS rates receive extensive attention from national news outlets due to Freddie Mac’s prominent role in the mortgage market. These updates offer valuable insights into mortgage rate trends that impact a wide array of industry participants.

Chief Executive Officers

Thomas R. Bomar (September 1, 1970 – June 7, 1973)
William J. Popejoy (June 7, 1973 – September 1974)
Victor H. Indiek (September 1974 – July 1, 1977)
Vacant (July 1, 1977 – September 1977)
Philip R. Brinkerhoff (September 1977 – August 16, 1982)
Kenneth J. Thygerson (August 16, 1982 – September 1985)
Leland C. Brendsel (September 1985 – September 1987)
Leland C. Brendsel (September 1987 – June 9, 2003)
Gregory J. Parseghian (June 9, 2003 – December 2003)
Richard F. Syron (December 2003 – September 6, 2008)
David M. Moffett (September 7, 2008 – March 13, 2009)
John A. Koskinen (March 13, 2009 – August 2009)
Charles E. "Ed" Haldeman, Jr. (August 2009 – May 21, 2012)
Donald H. Layton (May 21, 2012 – July 1, 2019)
David M. Brickman (July 1, 2019 – January 8, 2021)
Vacant (January 8, 2021 – March 16, 2021)
Mark B. Grier (March 16, 2021 – June 1, 2021)
Michael J. Devito (June 1, 2021 – March 15, 2024)
Michael T. Hutchins (March 16, 2024 – September 10, 2024)
Diana Reid (September 11, 2024 – March 20, 2025)

Interim

Awards

Freddie Mac earned recognition as one of the Best Places to Work for LGBTQ Equality according to Human Rights Campaign's Corporate Equality Index in its 2018 edition.
Featured among Working Mothers magazine’s top "100 Best Companies for Working Mothers" in the year 2004.
Achieved a ranking of number fifty on the Fortune magazine’s Fortune 500 list in the year 2007.
Positioned twentieth on Forbes Global 2000 list of public companies in 2009.

Credit Rating

As of March 2024:

	Standard & Poor's	Moody's	Fitch
Senior Long-Term Debt	AA+	Aaa	AA+
Short-Term Debt	A-1+	P-1	F-1+
Preferred Stock	D	Ca	C
Outlook	Stable	Negative	Stable

Investigations

In 2003, Freddie Mac revealed it had understated its earnings by close to $5 billion, which resulted in a $125 million penalty. Later, in 2006, the company faced a $3.8 million fine due to illegal campaign contributions connected to fundraisers benefiting members of the House Financial Services Committee, including its Chairman, Michael Oxley.

Government subsidies and bailout

By 2008, Freddie Mac and Fannie Mae controlled roughly half of the $12 trillion U.S. mortgage market under an assumed federal backing. The subprime mortgage crisis exposed their financial weaknesses, prompting the U.S. government in July 2008 to step in with credit support, Federal Reserve loans at commercial interest rates, and potential acquisition of Treasury shares to stabilize these institutions. This government intervention increased demands for enhanced oversight of government-sponsored enterprises (GSEs).

Although President Bush proposed regulatory reforms for housing finance in 2003, opposition emerged due to fears that such changes might reduce financing availability for low-income housing. Legislative attempts like Senate Bill S. 190 (Federal Housing Enterprise Regulatory Reform Act of 2005), supported by senators such as Chuck Hagel and John Sununu, failed to advance. Investigations by the Office of Federal Housing Enterprise Oversight uncovered management tactics that inflated reported profits, a concern emphasized by Senator John McCain in 2006. Despite these findings, efforts to implement regulatory reforms encountered bipartisan resistance through 2008.

Political connections

Several high-ranking executives at Fannie Mae and Freddie Mac have held prominent political positions. Kenneth Duberstein, former Chief of Staff under President Reagan and advisor to John McCain's 2000 presidential campaign, served on Fannie Mae's board from 1998 until 2007. Franklin Raines, who was Budget Director during Clinton’s administration and CEO from 1999 to 2004, was mistakenly identified as an Obama campaign advisor. James Johnson, CEO from 1991 to 1998, previously worked with Vice President Walter Mondale and chaired Obama’s Vice-Presidential Selection Committee. Jamie Gorelick, Deputy Attorney General under Clinton, acted as Vice-Chairman between 1998 and 2003. Johnson earned around $21 million; Raines approximately $90 million; and Gorelick about $26 million. Notably, three of these executives were associated with financial controversies related to mortgages.

Between 1989 and 2008, the largest beneficiaries of campaign donations from Freddie Mac and Fannie Mae included five Republicans and five Democrats. Among Republicans, Roy Blunt (R-MO) received $78,500 from PACs ($96,950 total), Robert Bennett (R-UT) $71,499 ($107,999 total), Spencer Bachus (R-AL) $70,500 ($103,300 total), and Kit Bond (R-MO) $95,400 ($64,000 total). Democratic recipients primarily received individual employee contributions rather than PAC funds: Christopher Dodd (D-CT) obtained $116,900 ($48,000 PAC), John Kerry (D-MA) $109,000 ($2,000 PAC), Barack Obama (D-IL) $120,349 ($6,000 PAC), and Hillary Clinton (D-NY) $68,050 ($8,000 PAC). John McCain collected $21,550 mostly through individual contributions. In addition, Freddie Mac contributed $250,000 to the 2008 Republican National Convention; comparable data for the Democratic National Convention has not been disclosed.

Conservatorship

On September 7, 2008, FHFA Director James B. Lockhart III initiated conservatorship over Fannie Mae and Freddie Mac, referencing financial evaluations and legal authority granted to the FHFA. The agency clarified that there were no intentions to dissolve either organization.

This action followed announcements that the federal government intended to assume control of both firms, accompanied by urgent meetings with their respective CEOs. The U.S. Treasury's capacity to finance stabilization measures was supported by legislation passed in July 2008, which increased the national debt limit by $800 billion to $10.7 trillion, thereby providing necessary funding flexibility for federal home loan banks.

Following the conservatorship, CEOs Daniel Mudd of Fannie Mae and Richard Syron of Freddie Mac were replaced. Herbert M. Allison, formerly vice chairman at Merrill Lynch, was appointed as Fannie Mae’s new CEO, while David M. Moffett, previously vice chairman at US Bancorp, assumed leadership at Freddie Mac. This executive restructuring was designed to reinforce the stability of these vital government-sponsored enterprises during the financial turmoil.

Related legislation

On May 8, 2013, Representative Scott Garrett introduced the Budget and Accounting Transparency Act of 2014 (H.R. 1872; 113th Congress) in the United States House of Representatives. The proposed legislation sought to alter how federal credit programs such as Fannie Mae and Freddie Mac are accounted for in the budget by mandating cost recognition on a fair-value basis according to Financial Accounting Standards Board standards. This change would incorporate the obligations of these programs into the national debt calculation, enhancing federal budget transparency without modifying the programs’ operations.

External links