History

• Freddie Mac was chartered by Congress in 1970 to provide reliable and stable residential mortgages. In 1971, it sold its first mortgage-backed security. By 1980, approximately half of all mortgage loans were sold in the secondary market, up from one-third when Freddie Mac was born. Along with other government-sponsored enterprises (GSEs), Freddie Mac dominated the secondary mortgage market. The company went public in 1989. Because of its dominance in the secondary mortgage market, it was hit hard by mortgage defaults in the late 2000s. In September 2008, Freddie Mac was placed in conservatorship by its chief regulator, the Federal Housing Finance Agency (FHFA).
  
  

Significance

• Freddie Mac is significant because of its sheer size in the mortgage security marketplace. Even in conservatorship, a May 2010 article in "The Money Times" lists it as "the second-largest provider of U.S. residential mortgage funds." From the time of its September 2008 conservatorship through early 2010, the federal government provided Freddie Mac $50.7 billion in assistance. A Congressional Budget Office estimate puts a total bailout number for Freddie Mac and its similar GSE Federal National Mortgage Association (Fannie Mae) at $389 billion through 2019.
  
  

Effects

• Freddie Mac's statutory mission is to provide liquidity, stability and affordability to the U.S. housing market. In carrying out this mission, the corporation has the ability to borrow funds at very low rates. While the federal government does not specifically guarantee the securities offered by Freddie Mac, an implied or perceived government backing made Freddie Mac's offerings very attractive to investors. The company tended to dominate markets once it entered them.
  
  

Conservatorship

• In May 2007, Freddie Mac Chief Executive Officer Richard Syron praised the company to investors, citing Freddie Mac's "cautious" avoidance of the sub-prime mortgage crisis, according to a September 2008 Bloomberg News story. Freddie Mac bought 13 percent of all securities created in 2006 and 2007. In fall 2008, Freddie Mac and Fannie Mae either guaranteed or owned more than 40 percent of all U.S. residential mortgages. As mortgage defaults increased and mortgage companies failed, Freddie Mac's share price fell more than 90 percent. The federal government seized the company and placed it in conservatorship Sept. 7, 2008.
  
  

Expert Insight

• The future of Freddie Mac was discussed by FHFA acting Director Edward DeMarco at a U.S. House of Representatives subcommittee meeting in late May 2010. Despite "their tenuous financial situation," Freddie Mac and Fannie Mae still have "a substantial market presence," DeMarco testified. The future of Freddie Mac will depend on lawmakers' decisions about the role of the federal government in housing finance programs. These roles include ensuring adequate sources of liquidity, providing the ability to avoid and absorb credit risk and promoting the availability of mortgage credit.