Freddie Mac: Doctor Loan Options And Features

Freddie Mac, also known as the Federal Home Loan Mortgage Corporation (FHLMC), is a government-sponsored enterprise that deals with home loans. It buys mortgages from smaller thrift banks, pools them, and sells them as mortgage-backed securities (MBS) to private investors. Freddie Mac does not lend to borrowers directly but backs mortgages to encourage lenders to approve loans. The question of whether Freddie Mac offers doctor loans specifically is unclear. However, it is ranked 45th on the 2023 Fortune 500 list of the largest US corporations by total revenue, with $3.208 trillion in assets under management.

Freddie Mac does not lend directly to borrowers

Freddie Mac, short for the Federal Home Loan Mortgage Corporation (FHLMC), is a government-sponsored enterprise (GSE). It was established in 1970 by Congress as a private corporation to expand the secondary market for mortgages and mortgage-backed securities.

Freddie Mac's primary method of making money is by charging a guarantee fee on the loans it has purchased and securitized. Investors are willing to pay this fee in exchange for Freddie Mac assuming the credit risk. This means that Freddie Mac guarantees that the principal and interest on the underlying loan will be paid back, even if the borrower defaults. Due to this financial guarantee, Freddie Mac's MBS are particularly attractive to investors.

While Freddie Mac does not lend directly to borrowers, it does operate loan programs that everyday homebuyers can access through mortgage lenders. These include the Home Possible® loan, a 3% down payment program for low-income borrowers, and the CHOICEHome® mortgage loan option for manufactured homebuyers. Freddie Mac also offers the HomeOne® Mortgage, a program with no income limits for first-time buyers, and the CHOICERenovation® program, which is similar to the Fannie Mae HomeStyle renovation program.

Freddie Mac is a government-sponsored enterprise

Freddie Mac, also known as the Federal Home Loan Mortgage Corporation (FHLMC), is a government-sponsored enterprise (GSE). It was established as a private corporation in 1970 through the Emergency Home Finance Act to provide competition for the newly private Federal National Mortgage Association (FNMA) or Fannie Mae.

As a GSE, Freddie Mac is a quasi-governmental entity that was established to enhance the flow of credit to specific sectors of the US economy. Although it is privately held, it provides public financial services. It helps facilitate borrowing for individuals, including students, farmers, and homeowners.

Freddie Mac, along with Fannie Mae, buys mortgages, pools them, and sells them as mortgage-backed securities (MBS) to private investors on the open market. This secondary mortgage market increases the supply of money available for mortgage lending and new home purchases. They do not lend money directly to the public but guarantee third-party loans and purchase loans in the secondary market, providing money to lenders and financial institutions.

Freddie Mac and Fannie Mae are overseen by the Federal Housing Finance Agency (FHFA). They were placed under government conservatorship in 2008 following the subprime mortgage crisis. They received a combined $187 billion in federal assistance to mitigate the impact of the wave of defaults on the housing market and the national economy.

Freddie Mac's primary method of making money

Freddie Mac, officially known as the Federal Home Loan Mortgage Corporation (FHLMC), is a government-sponsored enterprise (GSE) that plays a crucial role in the US housing finance system. Its 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. This fee is kept by Freddie Mac in exchange for assuming the credit risk, guaranteeing the repayment of the principal and interest on the underlying loan, regardless of the borrower's actions. This financial guarantee makes MBS bonds very attractive to investors, and they are eligible for trading in the "to-be-announced" or "TBA" market.

Freddie Mac was established in 1970 to expand the secondary market for mortgages in the US and to support homeownership and rental housing. It does not lend directly to borrowers but operates in the secondary mortgage market, buying loans from approved lenders and then pooling these mortgages into securities, which are sold to investors worldwide. This process increases the supply of money for mortgage lending and makes it available for new home purchases. The lenders, with replenished funds, can then provide more loans to qualified borrowers, keeping capital flowing into the housing market.

Freddie Mac, along with its sister organisation, the Federal National Mortgage Association (Fannie Mae), helps maintain a steady and reliable source of mortgage funding, ensuring that individuals, families and investors have access to affordable mortgages. Their activities influence interest rates and availability, and they played a significant role during the 2008 financial crisis, requiring a government bailout.

Freddie Mac's activities also encompass the multifamily housing market, where they have launched initiatives such as K-Deal, a CRT securitization that has transformed the way this market is funded. They have also introduced innovations such as reviewing borrowers' bank account data and factoring in on-time rent payments to help those who might not qualify through traditional underwriting methods. Additionally, Freddie Mac has initiatives to help renters build credit and support affordable homeownership in underserved markets.

The history of Freddie Mac

The Federal Home Loan Mortgage Corporation (FHLMC), more commonly known as Freddie Mac, is an American publicly traded, government-sponsored enterprise (GSE) that was chartered by Congress in 1970. The FHLMC was created to expand the secondary market for mortgages in the US and to provide competition for the newly private Federal National Mortgage Association (FNMA/Fannie Mae).

Initially, Freddie Mac was owned by the twelve Federal Home Loan Banks and governed by the Federal Home Loan Bank Board (FHLBB). In 1989, the Financial Institutions Reform, Recovery and Enforcement Act of 1989 ("FIRREA") revised and standardized the regulation of Fannie Mae and Freddie Mac, and abolished the FHLBB. An 18-member board of directors for Freddie Mac was formed, and the corporation was placed under the oversight of the U.S. Department of Housing and Urban Development (HUD).

Freddie Mac's primary method of making money is by purchasing mortgages from lenders, pooling them, and selling them as mortgage-backed securities (MBS) to private investors on the open market. This secondary mortgage market increases the supply of money available for mortgage lending and new home purchases. Freddie Mac does not originate or service mortgages, but instead buys them from private lenders, who can then extend more loans, widening mortgage access.

In 2003, Freddie Mac revealed that it had understated its earnings by almost $5 billion, resulting in a $125 million fine. In 2006, the corporation was fined $3.8 million for illegal campaign contributions. On September 7, 2008, the U.S. government took control of Freddie Mac, placing it under the conservatorship of the Federal Housing Finance Agency (FHFA). As of 2023, Freddie Mac is ranked No. 45 on the Fortune 500 list of the largest United States corporations by total revenue, with $3.208 trillion in assets under management.

Freddie Mac's role in the 2008 credit crisis

Freddie Mac, along with Fannie Mae, played a significant role in the 2008 financial crisis. Both enterprises are Government-Sponsored Entities (GSEs) that deal in the secondary mortgage market. They buy mortgages from smaller thrift banks, pool them, and sell them as mortgage-backed securities (MBS) to private investors. This increases the supply of money available for mortgage lending and new home purchases, thus influencing interest rates and availability.

In the years leading up to the 2008 financial crisis, Freddie Mac and Fannie Mae started investing in riskier loans, contributing to a housing bubble. They purchased large volumes of Alt-A mortgages, which had higher LTV and DTI ratios and often lacked full documentation of borrowers' incomes. They also bought private-label MBS collateralized by subprime mortgages, i.e., loans issued to borrowers with poor credit ratings.

When home values collapsed in 2007, defaults surged, and the MBS market unraveled. As a result, Freddie Mac and Fannie Mae lost billions of dollars on their portfolios and MBS guarantees, and investor confidence in them eroded. Their stock prices plummeted, and insolvency loomed. In July 2008, Congress passed the Housing and Economic Recovery Act, establishing the Federal Housing Finance Agency (FHFA). By September 2008, the federal government intervened and took control of both enterprises, placing them under direct supervision and conservatorship to prevent a wider economic fallout.

The role of Freddie Mac and Fannie Mae in the 2008 financial crisis has been widely discussed and scrutinized. Many critics have held the United States Congress accountable for its unwillingness to rein in the two enterprises. The government's implicit guarantee to keep the enterprises afloat and the subsequent intervention to prevent their collapse led to a government bailout and conservatorship.

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