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A printable version of "Freddie Mac's Vital Role in the Mortgage Market" can be downloaded here
[PDF 486K]
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As the housing crisis of the past year has unfolded, Freddie Mac continues to fulfill its mission to provide liquidity, stability and affordability to the nation's residential mortgage market, even as other investors have left the market.
- Freddie Mac is currently in the market buying mortgages and issuing securities, which helps to keep the
conventional conforming market liquid, and mortgage rates low and affordable.
- As Congress directed through the Economic Stimulus Act in February, Freddie Mac has extended the liquidity and stability we
bring to the conventional conforming market to the agency jumbo sector. In doing so, Freddie Mac has become an active buyer of these mortgages, providing liquidity and driving rates down. As a result, mortgage money is flowing into high-cost areas.
- For delinquent mortgages we own, Freddie Mac is continuing to help troubled borrowers avoid foreclosure and keep their
homes. We are also active in supporting industry efforts to help prevent foreclosures.
Keeping the Mortgage Market Liquid and Credit Affordable
The GSEs have become the main source of liquidity for home loans; in the second quarter of 2008, Freddie Mac and Fannie Mae
guaranteed approximately 70 percent of all newly originated conventional conforming mortgage debt. Without the GSEs playing their statutory role at this present time, the U.S. mortgage market would virtually shut down, as in the case of the U.K. mortgage market, which depends exclusively on depositories and private-label securitization. In the first half of this year alone, we have purchased nearly $300 billion of mortgages and mortgage-related securities, financing tens of thousands of mortgages and pumping
billions of dollars into the economy. Since Congress provided Freddie Mac, Fannie Mae and FHA with authority this spring to purchase certain jumbo mortgages, rates
for jumbo borrowers in high-cost areas have decreased significantly. We have helped lower rates for consumers by almost a full
percentage point.
Spread Between 30-Year Fixed Jumbo and
Conforming Rates Is Still Near Record Levels
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Supporting Sustainable Homeownership
- Freddie Mac continues to employ policies that help families afford – and keep – their homes. Our delinquency rates are a fraction of the industry average and far below those of most other credit investors.
- We're using a two-fold approach to supporting the mortgage market and managing credit and pricing for risk.
- Stringent underwriting principles: We say "no" to certain lending practices that set up borrowers for failure, such as
loans with too many high-risk factors.
- Use of risk-based pricing so we can support a broader range of loans without taking on excessive risk.
Helping Homeowners in Financial Difficulty Avoid Foreclosure
- At this critical time for the market and homeowners, we are vigorously enhancing our longstanding commitment to help Freddie Mac
borrowers in financial difficulty avoid foreclosure and stay in their homes. We have a long track record of leadership in foreclosure prevention. Our best-in-class practices include:
- Servicing policies that require lenders to pursue workouts on problem loans we guarantee, and we
pay them for every success. We recently doubled the workout incentive compensation we pay on workouts and eliminated the compensation for meeting certain foreclosure timelines.
- Last year, we paid servicers $12 million in incentives for successfully preserving homeownership, including more
than $7 million in cash bonuses to lenders for their successful workouts.
- Our current pace of workouts is 1,600 a week; our workout rate is 2 times the number of foreclosures.
- We've completed 37,500 workouts this year through the end of July; we expect to complete approximately 76,000 by the end of the year.
- As of July, we are financially assisting servicers with their borrower contact efforts through a temporary policy that reimburses servicers for borrower outreach efforts.
- Working with nonprofit financial counselors to contact hard-to-reach families.
- We've increased contact rates by ~25%; ~50% of these borrowers avoid foreclosure.
- We pay nonprofit default counselors to contact borrowers who haven't called their servicers during the first 45
days of delinquency. Pioneered in 2005, this effort has helped more than 6,000 families avoid foreclosure.
- We support other nonprofit, government and industry efforts to assist the industry in helping homeowners in default that do not
have Freddie Mac mortgages.
- Freddie Mac sends foreclosure avoidance experts to consumer housing events sponsored by HUD, state governments and
nonprofit organizations around the country to increase understanding of workout options, counseling opportunities and
foreclosure avoidance plans.
- We provide foreclosure avoidance training to housing counseling agencies, servicers, local and state government summits
and industry conferences.
- We have served on a number of Governors' Foreclosure Prevention Task Forces, acting as a resource for the states to help
keep families in their homes.
- Freddie Mac is a co-sponsor of (888) 995-HOPE, a national borrower counseling hotline that is the focus of a
national NeighborWorks America/Ad Council public service campaign.
About Freddie Mac
Freddie Mac was established by Congress in 1970 to provide liquidity, stability and affordability to the nation's residential mortgage markets. Freddie Mac supports communities across the nation by providing mortgage capital to lenders. Over the years, Freddie Mac has made home possible for one in six homebuyers and more than five million renters.
Updated: November 14, 2008
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