freddie mack . federal home loan mortgage corporation freddie mac type government sponsored enterprise and public company traded as otcqb fmcc industry financial services founded 1970 ; 46 years ago 1970 headquarters tysons corner virginia u.s. mclean mailing address key people donald h. layton ceo products diversified financials services credit services diversified investments revenue us 14.263 billion 2014 1 net income us 7.690 billion 2014 1 total assets us 1 945.539 billion 2014 1 total equity us 2.651 billion 2014 1 number of employees 4 957 2014 1 website freddiemac.com the federal home loan mortgage corporation fhlmc known as freddie mac is a public government sponsored enterprise gse headquartered in the tyson s corner cdp in unincorporated fairfax county virginia . 2 3 the fhlmc was created in 1970 to expand the secondary market for mortgages in the us . along with the federal national mortgage association fannie mae freddie mac buys mortgages on the secondary market pools them and sells them as a mortgage backed security to investors on the open market . this secondary mortgage market increases the supply of money available for mortgage lending and increases the money available for new home purchases . the name freddie mac is a variant of the initialism of the company s full name that had been adopted officially for ease of identification . on september 7 2008 federal housing finance agency fhfa director james b. lockhart iii announced he had put fannie mae and freddie mac under the conservatorship of the fhfa see federal takeover of fannie mae and freddie mac . the action has been described as one of the most sweeping government interventions in private financial markets in decades . 4 5 6 moody s gave freddie mac s preferred stock an investment grade rating of a1 until august 22 2008 when warren buffett said publicly that both freddie mac and fannie mae had tried to attract him and others . moody s changed the credit rating on that day to baa3 the lowest investment grade credit rating . freddie s senior debt credit rating remains aaa aaa from each of the major ratings agencies moody s s & p and fitch . 7 as of the start of the conservatorship the united states department of the treasury had contracted to acquire us 1 billion in freddie mac senior preferred stock paying at a rate of 10 % per year and the total investment may subsequently rise to as much as us 100 billion . 8 home loan interest rates may go down as a result and owners of freddie mac debt and the asian central banks who had increased their holdings in these bonds may be protected . shares of freddie mac stock however plummeted to about one u.s. dollar on september 8 2008 and dropped a further 50 % on june 16 2010 when the federal housing finance agency ordered the stocks delisted . 9 in 2008 the yield on u.s treasury securities rose in anticipation of increased u.s. federal debt . 10 for a comprehensive list of articles discussing freddie mac see bibliography of fannie mae and freddie mac . contents 1 history 2 business 2.1 conforming loans 2.2 guarantees and subsidies 2.2.1 no actual guarantees 2.2.2 assumed guarantees 2.2.3 federal subsidies 2.3 the mortgage crisis from late 2007 3 company 3.1 awards 3.2 credit rating 3.3 investigations 3.4 government subsidies and bailout 3.5 conservatorship 4 related legislation 5 see also 6 references 7 further reading 8 external links history edit from 1938 to 1968 the federal national mortgage association fannie mae was the sole institution that bought mortgages from depository institutions principally savings and loan associations which encouraged more mortgage lending and effectively insured the value of mortgages by the us government . in 1968 fannie mae split into a private corporation and a publicly financed institution . the private corporation was still called fannie mae and its charter continued to support the purchase of mortgages from savings and loan associations and other depository institutions but without an explicit insurance policy that guaranteed the value of the mortgages . the publicly financed institution was named the government national mortgage association ginnie mae and it explicitly guaranteed the repayments of securities backed by mortgages made to government employees or veterans the mortgages themselves were also guaranteed by other government organizations . to provide competition for the newly private fannie mae and to further increase the availability of funds to finance mortgages and home ownership congress then established the federal home loan mortgage corporation freddie mac as a private corporation through the emergency home finance act of 1970 . the charter of freddie mac was essentially the same as fannie mae s newly private charter to expand the secondary market for mortgages and mortgage backed securities by buying mortgages made by savings and loan associations and other depository institutions . initially freddie mac was owned by the federal home loan bank system and governed by the federal home loan bank board . in 1989 the financial institutions reform recovery and enforcement act of 1989 firrea revised and standardized the regulation of fannie mae and freddie mac . it also severed freddie mac s ties to the federal home loan bank system . the federal home loan bank board fhlbb was abolished and replaced by different and separate entities . an 18 member board of directors for freddie mac was formed and subjected to oversight by the u.s. department of housing and urban development hud . separately the federal housing finance board fhfb was created as an independent agency to take the place of the fhlbb to oversee the 12 federal home loan banks also called district banks . in 1995 freddie mac began receiving affordable housing credit for buying subprime securities and by 2004 hud suggested the company was lagging behind and should do more . 11 freddie mac was put under a conservatorship of the u.s. federal government on sunday september 7 2008 . business edit freddie mac s primary method of making money is by charging a guarantee fee on loans that it has purchased and securitized into mortgage backed security mbs bonds . investors or purchasers of freddie mac mbs are willing to let freddie mac keep this fee in exchange for assuming the credit risk that is freddie mac s guarantee that the principal and interest on the underlying loan will be paid back regardless of whether the borrower actually repays . because of freddie mac s financial guarantee these mbs are particularly attractive to investors and like other agency mbs are eligible to be traded in the to be announced or tba market . 12 conforming loans edit the gses are allowed to buy only conforming loans which limits secondary market demand for non conforming loans . the relationship between supply and demand typically renders the non conforming loan harder to sell fewer competing buyers ; thus it would cost the consumer more typically 1 4 to 1 2 of a percentage point and sometimes more depending on credit market conditions . ofheo now merged into the new fhfa annually sets the limit of the size of a conforming loan in response to the october to october change in mean home price . above the conforming loan limit a mortgage is considered a jumbo loan . the conforming loan limit is 50 percent higher in such high cost areas as alaska hawaii guam and the us virgin islands 13 and is also higher for 2 4 unit properties on a graduating scale . modifications to these limits were made temporarily to respond to the housing crisis see jumbo loan for recent events . guarantees and subsidies edit no actual guarantees edit the fhlmc states securities including any interest are not guaranteed by and are not debts or obligations of the united states or any agency or instrumentality of the united states other than freddie mac . 14 the fhlmc and fhlmc securities are not funded or protected by the us government . fhlmc securities carry no government guarantee of being repaid . this is explicitly stated in the law that authorizes gses on the securities themselves and in public communications issued by the fhlmc . assumed guarantees edit there is a widespread belief that fhlmc securities are backed by some sort of implied federal guarantee and a majority of investors believe that the government would prevent a disastrous default . vernon l. smith 2002 nobel laureate in economics has called fhlmc and fnma implicitly taxpayer backed agencies . 15 the economist has referred to the implicit government guarantee 16 of fhlmc and fnma . the then director of the congressional budget office dan l. crippen testified before congress in 2001 that the debt and mortgage backed securities of gses are more valuable to investors than similar private securities because of the perception of a government guarantee . 17 federal subsidies edit the fhlmc receives no direct federal government aid . however the corporation and the securities it issues are thought to benefit from government subsidies . the congressional budget office writes there have been no federal appropriations for cash payments or guarantee subsidies . but in the place of federal funds the government provides considerable unpriced benefits to the enterprises . government sponsored enterprises are costly to the government and taxpayers . the benefit is currently worth 6.5 billion annually . 18 the mortgage crisis from late 2007 edit as mortgage originators began to distribute more and more of their loans through private label mbs gses lost the ability to monitor and control mortgage originators . competition between the gses and private securitizers for loans further undermined gses power and strengthened mortgage originators . this contributed to a decline in underwriting standards and was a major cause of the financial crisis . 19 investment bank securitizers were more willing to securitize risky loans because they generally retained minimal risk . whereas the gses guaranteed the performance of their mbs private securitizers generally did not and might only retain a thin slice of risk . 19 often banks would offload this risk to insurance companies or other counterparties through credit default swaps making their actual risk exposures extremely difficult for investors and creditors to discern . 20 from 2001 2003 financial institutions experienced high earnings due to an unprecedented re financing boom brought about by historically low interest rates . when interest rates eventually rose financial institutions sought to maintain their elevated earnings levels with a shift toward riskier mortgages and private label mbs distribution . earnings depended on volume so maintaining elevated earnings levels necessitated expanding the borrower pool using lower underwriting standards and new products that the gses would not initially securitize . thus the shift away from gse securitization to private label securitization pls also corresponded with a shift in mortgage product type from traditional amortizing fixed rate mortgages frms to nontraditional structurally riskier nonamortizing adjustable rate mortgages arms and in the start of a sharp deterioration in mortgage underwriting standards . 21 the growth of pls however forced the gses to lower their underwriting standards in an attempt to reclaim lost market share to please their private shareholders . shareholder pressure pushed the gses into competition with pls for market share and the gses loosened their guarantee business underwriting standards in order to compete . in contrast the wholly public fha ginnie mae maintained their underwriting standards and instead ceded market share . 21 the growth of private label securitization and lack of regulation in this part of the market resulted in the oversupply of underpriced housing finance 21 that led in 2006 to an increasing number of borrowers often with poor credit who were unable to pay their mortgages particularly with adjustable rate mortgages arm caused a precipitous increase in home foreclosures . as a result home prices declined as increasing foreclosures added to the already large inventory of homes and stricter lending standards made it more