mortgage-terms

What Is Freddie Mac?

Freddie Mac (Federal Home Loan Mortgage Corporation) is a government-sponsored enterprise created in 1970 to expand the secondary mortgage market alongside Fannie Mae. It buys conventional mortgages from lenders — historically focusing on smaller banks and thrifts — packages them into mortgage-backed securities, and guarantees investor payments. Freddie Mac and Fannie Mae together back roughly half of all outstanding U.S. mortgages.

Key Facts

  • Freddie Mac was created by Congress in 1970 through the Emergency Home Finance Act specifically to provide competition for Fannie Mae and expand mortgage availability through smaller lenders
  • Freddie Mac and Fannie Mae together guarantee approximately $7.7 trillion in mortgage-backed securities — roughly half of the $12 trillion U.S. residential mortgage market
  • Freddie Mac has been in government conservatorship under the FHFA alongside Fannie Mae since September 2008 — the Treasury invested $71.3 billion to stabilize it
  • Freddie Mac's Primary Mortgage Market Survey (PMMS) has published weekly average mortgage rates since 1971 and is the most widely cited mortgage rate benchmark in the United States
  • Freddie Mac's Flex Modification program mirrors Fannie Mae's, offering payment reductions of up to 20% through rate reduction, term extension to 40 years, and principal forbearance

Live Data

1.78 Delinquency Rate on Single-Family Residential Mortgages (90+ days) stable 3.12 Serious Delinquency Rate (90+ Days, All Balances) rising 524.42 Mortgage Origination Volume rising

How Does Freddie Mac Work?

Freddie Mac's role is functionally identical to Fannie Mae's — it provides liquidity to the mortgage market by buying loans from originators and selling mortgage-backed securities to investors. The key operational flow:

  • Purchase: Freddie Mac buys conventional mortgages that meet its underwriting standards from approved lenders
  • Securitize: It pools loans into Participation Certificates (PCs) — Freddie Mac's name for its mortgage-backed securities
  • Guarantee: Freddie Mac guarantees timely payment of principal and interest to PC holders
  • Manage risk: It charges guarantee fees (g-fees) to compensate for default risk and uses credit enhancements (mortgage insurance, subordination) to protect against losses

Freddie Mac vs. Fannie Mae

While both GSEs serve the same fundamental purpose, there are historical and operational differences:

  • Origin: Fannie Mae (1938) was a New Deal creation; Freddie Mac (1970) was created to prevent Fannie Mae from becoming a monopoly
  • Lender base: Freddie Mac historically purchased more loans from smaller banks, thrifts, and credit unions, while Fannie Mae dealt more with large commercial banks. This distinction has blurred significantly.
  • Underwriting: Both use automated underwriting systems — Freddie Mac's is called Loan Product Advisor (LPA); Fannie Mae's is Desktop Underwriter (DU). Standards are nearly identical.
  • Affordable lending: Freddie Mac's equivalent to Fannie Mae's HomeReady is Home Possible — both allow 3% down payment for low-to-moderate income borrowers

For borrowers, the distinction is largely irrelevant. Your lender decides whether to sell your loan to Fannie Mae or Freddie Mac, and the terms of your mortgage don't change either way.

The Primary Mortgage Market Survey

Freddie Mac's PMMS is arguably its most publicly visible contribution. Published weekly since April 1971, it surveys lenders nationwide to report average 30-year and 15-year fixed mortgage rates. When news outlets report "mortgage rates this week," they're almost always citing the PMMS.

Freddie Mac and the 2008 Crisis

Like Fannie Mae, Freddie Mac suffered massive losses as housing prices declined and mortgage defaults surged. The federal government placed both GSEs into conservatorship on September 7, 2008. The Treasury injected $71.3 billion into Freddie Mac (compared to $119.8 billion for Fannie Mae). Both have since returned more than the investment amount in dividend payments, but remain in conservatorship as Congress has not acted on GSE reform.

Why Freddie Mac Matters for Financial Distress

Freddie Mac's underwriting standards — along with Fannie Mae's — define the boundary between the conventional mortgage market and everything else. Borrowers who don't qualify for conventional loans backed by the GSEs must turn to FHA loans (with higher costs) or non-qualified mortgages (with higher rates). This stratification is visible in the delinquency divergence the American Distress Index tracks: conventional loans backed by GSEs have significantly lower delinquency rates than FHA loans, reflecting the different risk profiles of the borrower pools.

Frequently Asked Questions

What is the difference between Freddie Mac and Fannie Mae?

Both buy and securitize conventional mortgages, but Freddie Mac was created in 1970 as competition for Fannie Mae (1938). Freddie Mac historically served smaller lenders while Fannie Mae worked with large banks. Today, their underwriting standards and loan limits are virtually identical. Borrowers don't choose between them.

How do I know if Freddie Mac owns my mortgage?

Use Freddie Mac's loan lookup tool at freddiemac.com/loanlookup. If Freddie Mac owns your loan, you may qualify for specific loss mitigation programs including Flex Modification, which can reduce your payment by up to 20% through rate reduction and term extension.

Is Freddie Mac still in conservatorship?

Yes, as of 2026. Freddie Mac has been in government conservatorship under the FHFA since September 2008. While both GSEs have returned more than the Treasury's investment in dividends, Congress has not passed legislation to end the conservatorship or restructure the GSEs.

What is Freddie Mac's Home Possible program?

Home Possible is Freddie Mac's affordable lending program allowing 3% down payment for borrowers at or below 80% of area median income. It accepts non-traditional credit history, allows gift funds for the entire down payment, and offers reduced mortgage insurance coverage requirements.

Why does Freddie Mac matter for mortgage rates?

Freddie Mac publishes the Primary Mortgage Market Survey — the most widely cited weekly mortgage rate benchmark. More importantly, by guaranteeing MBS, Freddie Mac reduces investor risk, which keeps mortgage rates lower than they would be in a purely private market.

Related Terms

Fannie Mae Government-sponsored enterprise that buys and guarantees conventional mortgages, providing liquidity so lenders can make more home loans. Ginnie Mae Federal government corporation that guarantees mortgage-backed securities backed by FHA, VA, and USDA loans. Carries the full faith and credit of the U.S. government. Conforming Loan A mortgage that meets Fannie Mae/Freddie Mac guidelines and loan limits, qualifying for GSE purchase. Typically offers the lowest conventional mortgage rates. Mortgage-Backed Securities (MBS) Investment bonds created by pooling thousands of home loans. Investors receive homeowners' monthly payments as returns. Central to how mortgages are funded in the U.S. Conventional Loan A mortgage not backed by a government agency. Typically requires higher credit scores and larger down payments than FHA loans. Loan Modification A permanent change to your mortgage terms — like a lower interest rate or longer repayment period — to make your monthly payment more affordable. Jumbo Loan A mortgage exceeding the conforming loan limit ($806,500 in most areas for 2025). Cannot be sold to Fannie Mae or Freddie Mac, so it carries higher rates and stricter requirements. Private Mortgage Insurance (PMI) Insurance protecting the lender on conventional loans with less than 20% down payment. Costs 0.5-1.5% of the loan annually and can be cancelled at 20% equity.

Sources

Freddie Mac — About Us Official overview of Freddie Mac's mission, charter, and role in housing finance Freddie Mac — Primary Mortgage Market Survey Weekly average mortgage rate data since 1971 — the industry benchmark FHFA — Conservatorship Overview Federal regulator's page on GSE conservatorship structure and status Congressional Research Service — Fannie Mae and Freddie Mac in Conservatorship Detailed analysis of GSE conservatorship history, financials, and reform proposals
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