Federal Home Loan Mortgage Corporation - Definition and Overview

The Federal Home Loan Mortgage Corporation ("Freddie Mac") (NYSE: FRE (http://www.nyse.com/about/listed/lcddata.html?ticker=FRE)) is a stockholder-owned, publicly-traded company chartered by the United States federal government in 1970 to purchase mortgages and related securities, and then issues securities and bonds in financial markets backed by those mortgages in secondary markets. Freddie Mac, like its competitor Fannie Mae is regulated by the Office of Federal Housing Enterprise Oversight (OFHEO) in the United States Department of Housing and Urban Development.

Freddie Mac makes money by charging a guarantee fee which is usually a small part of the interest payment of the loans they have securitized into bonds. (For example, Freddie Mac may purchase a loan with a rate of 5.19 percent and put it into a mortgage backed security (MBS) bond which has a 5.0 percent coupon, keeping 0.19 percent as the guarantee fee.) Investors, or purchasers of Freddie Mac MBS, are willing to let Freddie Mac keep this fee in exchange for Freddie's guarantee that the principle of the underlying loan will be paid back according to the loan's payment schedule. This is how Freddie Mac began making money at its inception and continues to do so today. But today, the majority of Freddie Mac's income is derived from the interest rate difference in the corporate debt Freddie Mac issues and the MBS that Freddie Mac's retained portfolio purchases.

The company is based in McLean, Virginia.

Credit rating

See [1] (http://www.freddiemac.com/investors/credit_reports.html)

• Senior Long-Term Debt: AAA Aaa AAA
• Short-Term Debt A-1+ Prime-1 F-1+
• Subordinated Debt AA- Aa2 AA-
• Preferred Stock AA- Aa3 AA- Watch Negative
• Risk-To-The-Government AA- Not Applicable Not Applicable
• Bank Financial Strength Not Applicable A- Not Applicable

Investigations

As of 2004, Freddie Mac is under investigation for creative accounting practices that may have been aimed more at protecting figures and bonuses than actually managing risk.

Awards

Freddie Mac was named one of the 100 Best Companies for Working Mothers in 2004 by Working Mothers magazine.

See also

• Derivative security
• Government sponsored enterprise
• Securitization

Companies

• Fannie Mae
• Farmer Mac
• Ginnie Mae
• Sallie Mae

External links

• Freddie Mac Home Page (http://www.freddiemac.com/)

Data

• Yahoo! - Freddie Mac Company Profile (http://biz.yahoo.com/ic/13/13944.html)