Freddie Mac: What Is The Federal Home Loan Mortgage Corporation (FHLMC)?

Buying a home and looking for a mortgage? You might have heard of the Federal Home Loan Mortgage Corporation, better known as Freddie Mac. But what is Freddie Mac and what is a Freddie Mac mortgage?

Freddie Mac is one of two government-sponsored entities, along with Fannie Mae. According to the Federal Housing Finance Agency, Congress created both Freddie Mac and Fannie Mae to provide liquidity, stability and affordability in the U.S. mortgage market.

Freddie and Fannie do this by buying mortgages from lenders and either holding these loans in their own portfolios or packaging them into mortgage-backed securities that they can sell to investors.

Lenders use the cash they raise by selling their mortgages to Freddie Mac and Fannie Mae to loan more money to home buyers. Thanks to Freddie Mac and Fannie Mae, then, individuals and investors who want to purchase single-family homes and multifamily properties have access to the mortgage dollars that they need to finance these purchases.

What Is A Freddie Mac Loan?

When applying for a mortgage, you can choose from many loan types, anything from a fixed-rate mortgage in which your interest rate will never change to an adjustable-rate mortgage in which your interest rate can rise or fall during the life of your loan. But all these mortgages fall into two main categories: conforming and non-conforming loans.

Conforming loans are those that meet certain limits set by the Federal Housing Finance Agency. Freddie Mac – and Fannie Mae – can only purchase conforming loans from lenders. It is not allowed to buy non-conforming loans.

Each year, the Federal Housing Finance Agency sets a maximum conforming loan limit. Any mortgage loans for higher than that amount are categorized as non-conforming loans. For 2024, the conforming loan limit in most parts of the country for single family homes is $766,550, an increase of $40,350 from 2023. In higher-cost areas of the country such as New York, California and Hawaii, the conforming loan limit can be more than $1.149 million.

Any loans for higher than an area's conforming loan limit will be qualified as a non-conforming loan and not eligible for purchase by Freddie Mac.

Freddie Mac has other requirements for what it considers a conforming loan. For example, when using a mortgage to finance the purchase of a one-unit primary residence, borrowers taking out most mortgage loans must come up with a down payment of at least 5%. Borrowers who take out a Freddie Mac HomeOne mortgage, though – available to first-time home buyers – can provide a down payment of just 3% of a home’s purchase price and still have their mortgage qualify as a conforming loan.

Why does it matter if a loan is conforming or non-conforming? Taking out a conforming loan can save you money. Conforming loans generally come with lower interest rates because lenders are taking on less risk. Because Freddie Mac can purchase such loans, lenders might not have them on their books for 15 or 30 years. If lenders feel that they are taking on less risk, they won’t need to charge you a higher interest rate. That’s good for you: Higher interest rates result in higher monthly payments. Lower rates mean lower monthly payments. Freddie Mac and Fannie Mae, then, help make it possible for borrowers to qualify for mortgage loans at lower interest rates.

It's important to remember, though, that Freddie Mac does not originate its own mortgages. You’ll have to apply for a mortgage with a bank, credit union or lender. If your mortgage qualifies as a conforming loan, Freddie Mac might buy it. But you can’t approach Freddie Mac directly and apply for a home loan.

What Does The FHLMC Do?

Freddie Mac has an important mission: to increase liquidity in the mortgage market. This makes it possible for mortgage lenders to continue offering home loans to consumers. Freddie Mac uses the secondary mortgage market to do this, buying mortgages from private lenders.

• Liquidity: Freddie Mac provides infusions of cash to the lenders from which it buys mortgage loans. This is especially important for smaller banks and credit unions, many of which might not be able to offer home loans without the cash they receive from Freddie Mac.
  
  
• Stability: Freddie Mac bundles many of the mortgages that it buys into investments known as mortgage-backed securities, better known as MBS. Investors, including hedge funds and insurance companies, purchase these. Mortgage-backed securities provide these investors with access to real estate with less risk. By selling these securities, Freddie Mac receives money that it can then reinvest in the mortgage market by using it to purchase more mortgage loans from lenders, banks and credit unions.
  
  
• Affordability: Freddie Mac offers programs designed to make it easier for people with lower incomes to afford homeownership. An example? The Home Possible mortgage. This mortgage program lets people buy homes with a down payment of just 3% of a home’s purchase price. This can make a big difference to home buyers: Say you are buying a home with a $250,000 price tag. A down payment of 10% is $25,000, not an easy amount of money to scrape together. But a down payment of 3% on that same home comes out to a more affordable $7,500.

History Of Freddie Mac

Freddie Mac got its start in 1970, when Congress created it to provide support to the U.S. housing finance system. Freddie Mac's goal then, as it is now, was to ensure that home buyers had access to a reliable and affordable supply of mortgage funds.

On its website, Freddie Mac said that during 5 decades, it has provided more than $13.8 trillion to make homeownership possible for nearly 90 million owners and renters.

Freddie Mac also says that it has helped prevent 1.7 million foreclosures since 2012 and, through its first-time buyer programs, helped 7.1 million first-time home buyers purchase a home.

Since 1972, Freddie Mac has purchased 1.3 million single-family loans from community lenders.

How Does Freddie Mac Affect The Mortgage Market?

The Federal Housing Finance Agency says that Freddie Mac has had a significant and positive impact on the U.S. mortgage market.

How? According to the agency, because Freddie Mac packages mortgages into mortgage-backed securities and guarantees the timely payments of these loans' principal and interest, the agency attracts investors to the secondary mortgage market.

These investors might not otherwise put their dollars into the mortgage market, instead seeking other, safer investments. With Freddie Mac's guarantees, mortgages, too, have become a safe place for investors looking for low-risk investment vehicles. This has expanded the amount of funds that private mortgage lenders can loan to home buyers.

Mortgage interest rates are also lower because Freddie Mac and Fannie Mae have boosted the liquidity of the secondary mortgage market, according to the Federal Housing Finance Agency.

The Bottom Line

You probably won’t think too much about Freddie Mac or Fannie Mae when you apply for a mortgage. But these two agencies have helped make it possible for your lender to loan you mortgage dollars at a relatively low interest rate. Without Freddie or Fannie, financing the purchase of a home would be more difficult and costly.

Are you ready to start your own hunt for a new home? If you need to finance its purchase, start the mortgage process with us.