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Frequently Asked Questions about Freddie Mac
1) What is Freddie Mac? Freddie Mac is a stockholder – owned corporation chartered by Congress to increase the supply of funds that mortgage lenders, such as commercial banks, mortgage bankers, savings institutions and credit unions, can make available to homebuyers and multifamily investors. Since Freddie Mac was created in 1970, we have pursued the purpose our Congressional founders set out for us: to provide a continuous and low – cost source of credit to finance America's housing. We achieve this purpose by
Freddie Mac conducts its business primarily by buying mortgages from lenders, packaging the mortgages into securities and selling the securities – guaranteed by Freddie Mac – to investors. Mortgage lenders use the proceeds from selling loans to Freddie Mac to fund new mortgages, constantly replenishing the pool of funds available for lending to homebuyers and apartment owners. Just as stock and bond markets have put investor capital to work for corporations, the secondary mortgage market puts private investor capital to work for homebuyers and apartment owners, providing a continuous flow of affordable funds for home financing. For the most part, the process is invisible to borrowers and renters. But because Freddie Mac exists, millions of Americans have benefited from lower monthly mortgage payments and better access to home financing. In fact, for more than 35 years we have opened doors for one in six homebuyers and more than four million renters in America.
2) What is the secondary mortgage market? If you think of America's mortgage lenders as retail stores where people go to get mortgages, the secondary mortgage market is their supplier. Freddie Mac, one of the biggest buyers of home mortgages in the United States, is considered a secondary market conduit between mortgage lenders and investors. Lenders look to Freddie Mac and other secondary market conduits for the funds they need to meet consumer demand for home mortgages and multifamily housing. By "linking" mortgage lenders with security investors, Freddie Mac keeps the supply of money for housing widely available and at a lower cost.
3) Does Freddie Mac make loans? No, Freddie Mac does not make loans directly to homebuyers. After borrowers complete the closing process on their mortgage loans, Freddie Mac buys those mortgages from their approved lenders. The process of replenishing the supply of funds enables the lenders to make more mortgage loans to other borrowers.
4) Does Freddie Mac have any direct impact on consumers? Yes. Because of Freddie Mac, consumers benefit from lower mortgage interest rates, readily available home mortgage credit, a wider selection of mortgage products and reduced origination costs. Freddie Mac does not lend money directly to consumers – that is the lender's job. Freddie Mac's job is to buy mortgages from lenders across the country that meet the underwriting and specific program standards that produce investment – quality mortgages; this process contributes to lowering interest rates. Freddie Mac is not responsible for the decisions made by its lenders; however, these guidelines help lenders decide whether a borrower is willing and able to repay the mortgage on time and whether the property is valuable enough to help pay off the mortgage if the borrower defaults on the mortgage payments. Loan Prospector®, Freddie Mac's automated underwriting service, has helped establish a new standard for delivering low – cost financing to homebuyers of all types. Freddie Mac designed Loan Prospector with input from lenders, mortgage insurers, software vendors and other key industry players. We went far beyond simply automating traditional underwriting requirements and reengineered the loan origination process. Through streamlined processes and reduced documentation, Loan Prospector helps give lenders the information they need to make a consistent, fair and reliable lending decision with greater ease than ever before. Loan Prospector helps expand the universe of potential borrowers by factoring in mortgage eligibility alternatives to traditional Freddie Mac underwriting guidelines. And, Loan Prospector has the potential to make homeownership more affordable by helping to lower lenders' loan origination costs. As a result, borrowers can be approved for loans with less hassle, less paperwork and in less time.
5) Is Freddie Mac a government agency? No. Freddie Mac was chartered by Congress as a private company serving a public mission; however, Freddie Mac is not an agency of the Federal or any state government nor does Freddie Mac receive federal funds. In fact, Freddie Mac is one of the nation's largest federal taxpayers. Freddie Mac is owned by its shareholders and, like other corporations, is accountable to its shareholders and a board of directors. Freddie Mac's enabling legislation calls for our Board to have 18 directors, five of whom are to be appointed by the President of the United States. Anyone can own Freddie Mac stock, which is traded under the stock ticker symbol "FRE" on the New York Stock Exchange; in your local newspaper, you'll see our stock price referenced as "FredMac."
Yes. The Federal Housing Enterprises Financial Safety and Soundness Act of 1992 created a regulatory oversight structure for government sponsored entities (GSEs) like Freddie Mac, divided to address two functions – our housing mission and our safety and soundness. The U.S. Department of Housing and Urban Development (HUD) has oversight responsibilities for the housing mission of the GSEs. Effective January 1, 2005, HUD established new and increasing affordable housing goal levels for the GSEs for the years 2005 through 2008. These goals require that a certain percentage of the mortgages we purchase support financing for housing low – and moderate – income families. Safety and soundness regulation is vested in the Office of Federal Housing Enterprise Oversight (OFHEO). Organizationally, OFHEO is located within HUD, but operates independently of the Secretary of HUD as it implements, monitors and enforces capital standards for Freddie Mac and Fannie Mae.
7) How does Freddie Mac increase access to affordable housing? Financing housing for low – and moderate – income families has been a key part of Freddie Mac's business since we opened our doors. Freddie Mac's vision is that families must be able both to afford to purchase a home and to keep that home once they have undertaken a mortgage obligation. Freddie Mac reaches diverse households and neighborhoods, and we are constantly striving to extend the benefits of the secondary market through our approved lenders to homebuyers. We want to ensure that every creditworthy borrower, regardless of race, color, religion, national origin, sex, age, marital status, receipt of public assistance, income or neighborhood, is aware of and has access to mortgage money. 8) Does Freddie Mac pose financial risk to American taxpayers? No. Many independent, formal studies – conducted by government agencies and private rating agencies – confirm that Freddie Mac is adequately capitalized and manages its business risks well. Freddie Mac's obligations and securities do not constitute government debt and are not guaranteed by the Federal government.
9) How does Freddie Mac differ from Fannie Mae and Ginnie Mae? Freddie Mac and Fannie Mae have the same charters, Congressional mandates and regulatory structure. The two companies, however, have different business strategies. Competition between Freddie Mac and Fannie Mae ensures that the benefits of the secondary market are passed on to homebuyers and renters in the form of lower housing costs. Both Freddie Mac and Fannie Mae operate as publicly traded corporations. Ginnie Mae is a government agency within HUD created by Congress to ensure adequate funds exclusively for government loans insured by the Federal Housing Administration (FHA) and guaranteed by the Department of Veterans Affairs (VA) and Veterans Administration.
10) Why do we need Freddie Mac? Freddie Mac helps ensure that the U.S. housing finance system is among the most liquid, efficient and reliable in the world. Freddie Mac helps keep mortgage interest rates lower, brings innovation and automation to the mortgage lending process and continues to help one in six homebuyers realize their dream of owning a home. According to the Office of Management and Budget (OMB), "mortgage rates are 25 – 50 basis points lower because Fannie Mae and Freddie Mac exist in the form and size they do." Because the secondary mortgage market saves homebuyers up to one half percent on their mortgage, borrowers nationwide save an average of nearly $23.5 billion annually. The secondary market has ensured that funds are continually available for residential mortgages by financing mortgages for more than 50 million homes so far. This is precisely why Congress created Freddie Mac – to provide a continuous and low – cost source of credit to finance America's housing.
11) Does Freddie Mac's website have information about mortgage interest rates? You can obtain mortgage interest rates from a variety of sources. One of
these sources is the Primary Mortgage Market Survey®, a list of average interest
rates compiled from Freddie Mac's weekly nationwide interest rate survey. In
addition, you can contact lenders in your community to research the variety
of interest rates and terms they offer or obtain interest rate information from
local newspapers, television and radio programs.
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