Freddie Mac and Making Home Possible

We've all heard of Fannie Mae and Freddie Mac, in various tones and across different topics. But who are they? How do they operate in the world of mortgages, money, and home ownership?How are they different from other banks and lenders? In a series of articles, we examine the good, the bad, and the curious about government-sponsored enterprises, otherwise known as Fannie Mae and Freddie Mac.

Freddie Mac was organized by the government as the Federal Home Loan Mortgage Corporation (FHLMC, or Freddie Mac). The organization is a government-sponsored enterprise with a public mandate but private ownership. The company was given a mission in 1970 to expand the secondary market for mortgages in the United States, that market that the government first created with Fannie Mae in 1938. Working within the secondary mortgage market, they enable banks and other lenders to loan more, thereby offering more families the opportunities to become homeowners.

While organized by the government and given a public mission, the company is still private. Just like their major competitor and partner, Fannie Mae, their primary goal is making money. This means they've been susceptible to the kind of corporate greed that causes scandals (as described in another article). But despite this, they lead some truly interesting and innovative programs designed to support and expand homeownership in America.

Freddie Mac's goal is to "make home possible" for more Americans. Their mission and methods are grouped into four areas.

Market Stability. The company was formed to expand the secondary mortgage market, that source of funds that ensures liquidity and stability of mortgage funds. As noted in our overview of GSEs, liquidity of mortgage funds means mortgages can be offered quicker, with a more standard value despite economic conditions. This standardization attracts investors, adding further strength to the mortgage market and offering a stable supply of money from which lenders can offer loans.

Affordability. As part of their public mandate, Freddie Mac works to ensure that more and more families are able to purchase a home and keep that home. They work to grow the secondary mortgage market, enabling lenders to offer more and more reasonable loans to a greater number of borrowers, particularly low and moderate-income families, first time home buyers and minority home buyers. Their work allows lenders to offer a fuller range of mortgage products, requiring less cash for down payment and closing costs, helping people with past credit problems or no credit, and more.

Opportunity. Freddie Mac aims to educate borrowers and enable more loans to be made. They lead outreach programs and homebuyer education initiatives to reach potential minority homeowners. The initiatives include:

> Creditsmart, offering tips and information developed to help consumers make wise financial decisions, avoid credit scams and build and protect their credit.

> Creditsmart® Español provides tips and information in a bilingual format to help Hispanic Americans and Spanish-speaking immigrants or those with limited English proficiency understand the importance of good credit and the U.S. financial system.

> Buying and Owning a Home online tutorial gives consumers information on all steps of homeownership, from understanding how credit influences the ability to buy a home to choosing where to live.

> Como Comprar y Ser Propietario de Casa provides a step-by-step guide to becoming a homeowner for Spanish speaking consumers.

> Don't Borrow Trouble gives consumers information on anti-predatory lending and other consumer protection issues.

Prosperity: Freddie Mac aims to expand not just the mortgage market, but in effect the entire economy. Nearly 20 percent of the economy is made up of housing and related industries, and the company aims to create and sustain programs that support this sector. Part of encouraging economic expansion and prosperity is developing existing and future communities, and Freddie Mac does this through various neighborhood and non-profit programs.

Freddie Mac counts their efforts towards major industry improvement, including standardizing mortgage documents, introducing automated mortgage technology, foreclosure prevention aids, and leading the fight against unfair and predatory lending practices.

Other articles in this series about Fannie Mae and Freddie Mac
Government-Sponsored Enterprises: Fannie Mae and Freddie Mac Today
Government-Sponsored Enterprises: Fannie & Freddie Today, Part 2

U.S. Mortgage Rates Stay Steady

Long-term mortgage rates increased slightly in the week ending September 6, 2007, according to finance company Freddie Mac. Their weekly Primary Mortgage Market Survey® was released Thursday.

"Over the past week, long-term mortgage rates were largely unchanged as the most recent economic news showed smaller increases than had been expected," said Frank Nothaft, Freddie Mac vice president and chief economist. "For instance, core personal consumption expenditure price index rose at an annualized rate of only 1.3 percent in the second quarter and July's consumer spending data showed a 1.9 percent gain in the core price index for the twelve months ending in July."

This week's survey indicates 30-year fixed mortgage rates averaged 6.46 percent, a boost from last week's average of 6.45 percent. Last year at this time, the 30-year fixed-rate mortgage averaged 6.47 percent.

Fixed mortgage rates for 15-year terms averaged 6.15 percent, an increase from last week's average of 6.12. A year ago, the 15-year fixed-rate mortgage averaged 6.16 percent.

Averages for Treasury-indexed adjustable-rate mortgages (ARMs) bucked the trend and decreased this week. Five-year ARMs averaged 6.32 percent, down slightly from last week's average of 6.35 percent. At this time last year, the five-year ARM also averaged 6.14 percent.

One-year ARMs averaged 5.74 percent this week, a big drop from last week's average of 5.84 percent. Last year, the one-year ARM averaged 5.63 percent.
Freddie Mac said that to obtain these rates lenders charged an average 0.5-point fee for fixed-rate mortgages. Lenders charged a 0.6-point fee for ARMs.

"In other news, the most recent Conventional Mortgage Home Price Index (CMHPI) release issued by Freddie Mac reported that on average, national house prices grew by 0.1 percent in the second quarter, the slowest quarterly house price growth since the fourth quarter of 1994," said Nothaft. "For the past 12 months, house prices appreciated 3.3 percent, the slowest rate in 10 years."

Freddie Mac is a mortgage finance company established by Congress in 1970. The company buys mortgages and mortgage-related securities and packages them to sell to investors or to hold in its own portfolio. They release their summary of average mortgage rates weekly.


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