Our Business

In 1970, Congress created Freddie Mac with a few important goals in mind:

Make sure that financial institutions have mortgage money to lend
Make it easier for consumers to afford a decent house or apartment
Stabilize residential mortgage markets in times of financial crisis

To fulfill this mission, Freddie Mac conducts business in the U.S. secondary mortgage market – meaning we do not originate loans – and works with a national network of mortgage lending customers. We have three business lines: a Single Family Credit Guarantee business for home loans; a Multifamily business for apartment financing; and an investment portfolio.

Single-Family Credit Guarantee Business
Multifamily Business
Investment Business
Benefits
Conservatorship
Foreclosure Prevention

Single-Family Credit Guarantee Business

In our Single-Family business, we use mortgage securitization to fund millions of home loans every year. Securitization is a process by which we purchase home loans that lenders originate, put these loans into mortgage securities that are sold in global capital markets, and recycle the proceeds back to lenders. This recycling is designed to ensure that lenders have mortgage money to lend. During 2008, Freddie Mac guaranteed $358 billion in home loans, representing 1.9 million families who purchased or refinanced their homes. And at year-end 2008, our total outstanding obligations of mortgage-related securities stood at more than $1.8 trillion.

What makes the securitization process work? Families paying their mortgages every month. Because once a family moves into their home, their monthly payments of mortgage principal and interest are transferred ultimately to securities investors. When a family stops making payments – often due to loss of income – Freddie Mac steps in and makes those payments to securities investors. Managing this risk, known as credit risk, is how we generate revenue. Each time we fund a loan, we collect a credit guarantee fee from the lender selling us the loan. This fee is intended to protect us in case of loan default.

Other features of this business line:

We guarantee mortgages exclusively in the conventional conforming market, where we purchase loans only up to a certain dollar amount (for 2009, $417,000 for most of the nation and $729,750 in high-cost areas)
The vast majority of the loans we fund are long term, fixed rate mortgages
We generally require third-party mortgage insurance on loans with low downpayments
We have loan servicing operations that work with lenders to avoid foreclosure, where possible, for families in financial difficulty

Multifamily Business

Since not everyone owns their own home, Freddie Mac supports renters, too. Through our Multifamily business, we work with a network of lenders to finance apartment buildings around the country. Like single-family loans, these lenders originate and close loans that Freddie Mac later purchases; lenders then use our proceeds to originate additional loans.

Unlike single-family loans, which are relatively small in dollar amount and standardized in their composition and underwriting, multifamily loans typically are several million dollars in size, have characteristics important to underwriting that vary from property to property, and require custom examination such as on-site property inspections and verification of income cash flows (i.e., rents). One other difference: while single-family borrowers are individual consumers, multifamily borrowers are property developers and/or managers.

In this business line, Freddie Mac finances most of its loan acquisitions by issuing corporate debt securities. We generate revenue by producing what is known as net interest income; that is, the difference between the interest payments we collect on the multifamily loans we own and the yields we pay securities investors for investing in our debt. Freddie Mac also funds some multifamily loans through securitization. And we invest in certain commercial mortgage-related securities that contain multifamily loans as well as Low-Income Housing Tax Credits.

During 2008, Freddie Mac funded $24 billion in multifamily loans, representing housing for 418,000 families. At year-end 2008, the portfolio of multifamily loans outstanding was $88 billion.

Investment Business

The investment portfolio invests in mortgage-related securities that are guaranteed by Freddie Mac and other financial institutions. The portfolio also invests in individual loans that are guaranteed by Freddie Mac but not immediately securitized. As a bidder in the market, the investment portfolio helps to make mortgage-related securities more liquid and mortgage funding more available.

We fund acquisition of mortgage securities by issuing debt securities, generating net interest income. During 2008, the investment portfolio acquired a net of $321 billion in mortgage-related securities. At year-end 2008, the investment portfolio had an outstanding balance of $805 billion. Roughly one-half of this balance includes Freddie Mac mortgage-backed securities, known as Participation Certificates, guaranteed by the Single-Family and Multifamily businesses.

Benefits

The activities performed by Freddie Mac’s business lines have certain public policy benefits.

We have been a consistent market presence, providing mortgage liquidity in a wide range of economic environments. This has become significant during the credit crunch that began in mid-2007 and resulted in the exit of most other mortgage funders from the market. Indeed, in 2008 Freddie Mac and Fannie Mae funded 74 percent of all new home loans and an even higher percentage of multifamily loans.

Another benefit is that consumers have typically paid less on home loans funded by Freddie Mac or Fannie Mae. Because investors usually place a greater value on our mortgage securities, we have been able to pass this premium ultimately along to homebuyers in the form of lower mortgage rates. During normal or flush markets, where there are many sources of mortgage funds, homebuyer savings on our loans have averaged about 0.30 percent (or 30 basis points). During the current credit crunch, however, mortgage rate savings have been high as 1.84 percent (or 184 basis points).

What is more, these benefits accrue the most to families of modest financial means. Indeed, the majority of home loans that we fund support low- and moderate-income families, reflecting affordable housing goals set forth by the federal government.

Conservatorship

Since September 2008, Freddie Mac (and Fannie Mae) have been in conservatorship, operating under the direction of the Federal Housing Finance Agency (FHFA). Conservatorship allows Freddie Mac to continue supporting mortgage markets while ensuring our financial solvency.

This status also allows Freddie Mac to implement key parts of President Obama’s Making Home Affordable Plan. We are continuing to provide mortgage liquidity to the broad market, supporting homebuying and refinancing alike. We are enabling homeowners currently in Freddie Mac loans to refinance even more easily, including homeowners with low or negative home equity. And we are implementing the President’s standards for modifying loans so that additional families can avoid foreclosure.

Foreclosure Prevention

In addition to supporting the President’s plan, Freddie Mac has taken a leadership role in establishing and enforcing best practices and standards in foreclosure prevention for many years. Some of our more recent efforts include:

Implementing a moratorium on foreclosure sales
Launching a rental initiative that lets former borrowers and existing renters temporarily stay in their homes after foreclosure with month-to-month leases
Suspending evictions triggered by foreclosures
Providing financial incentives to our servicers to do more loan workouts for borrowers
Increasing our servicing staff to help facilitate more workouts
Streamlining our documentation requirements for loan workouts
Working with national and local media to disseminate the latest in borrower options and programs; created an online resource center on FreddieMac.com
Sharing information with the housing industry, including attorneys, real estate professionals, local agencies, and consumer and civil rights organizations

Our Lines of Business

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