Federal Home Loan Mortgage Corporation, Law

The Federal Home Loan Mortgage Corporation (FHLMC), commonly referred to as Freddie Mac, was created in 1970. Their primary goal was to expand the secondary market for mortgages. This expansion would help increase the supply of money available for new home buyers. The FHLMC purchases secondary mortgages made by savings and loans associations and mortgage bankers and combines them with other secondary mortgages. The FHLMC then resells the pooled mortgages as security-backed mortgage bonds to other investors. They charge the investors a guarantee fee on the securities, which means that the FHLMC guarantees to pay back the principal and interest on a loan in the event of a default by the borrower. The fee charged for this guarantee is their primary source of income. Although the FHLMC is considered a government-sponsored enterprise (GSE), their securities are in no way protected by the United States Government.