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Freddie Mac is Making His Way Back

Homebuyers today are intrigued by the TBD Mortgage Approval Programs being offered by reputable lenders like Better Rate Mortgage.

Who Is Freddie MacSince his 2008 slap on the wrist and placement into the Federal Housing Finance Agency (FHFA), Freddie Mac has slowly been redeeming himself, recently reporting an annual profit of $48.7 billion for the year 2013.

Who is Freddie Mac?

You could say that Freddie Mac is Fannie Mae’s little brother. Fannie Mae started as a government sponsored enterprise that offered secured insurance to mortgage lenders. When the program became a private corporation in 1968, Congress established the Federal Home Loan Mortgage Corporation, whose nickname became Freddie Mac. Its purpose was to increase the availability of monies to help finance mortgages and encourage home ownership. It accomplishes this by buying mortgages from banks and other lenders.

In 1989 the U.S. Department of Housing and Urban Development (HUD) was directed by the government to oversee the activities of Freddie Mac. In 2004, HUD implied that Freddie Mac was not holding up to its promises of stimulating home ownership and suggested that they improve on their programs. With little improvement noted over the next four years, the Federal Government intervened and placed Freddie Mac, along with Fannie Mae under conservatorship with the FHFA being directed to take over operations. This was considered a necessary step to avoid the devastation that would have occurred to the financial system had the two entities gone under. This move was the largest of its kind ever seen in US financial history.

What Does Freddie Mac Do Now?

Freddie Mac has a lot to do now with the growing increase of home sales. Homebuyers today are intrigued by the TBA Mortgage Approval Programs being offered by reputable lenders like Better Rate Mortgage. These programs allow a potential homeowner to obtain approval for a mortgage before a home has been decided on. Freddie Mac makes its money by purchasing higher risk loans like these for a fee. The lenders are happy to relinquish this money for the security of knowing that Freddie Mac is backing the loan.

Freddie Mac and Fannie Mae own or guarantee at least 60% of the home mortgages held in the United States.  This is giving potential home owners more opportunities to secure funding through programs like the TBA Mortgage Approval and the FHA 203B loan.  As a result, home sales continue to rise steadily while the rate of foreclosed on homes has dropped dramatically.

The record profit that Freddie Mac recently reported has already started investors to take a renewed interest in buying shares of the entity, which are now the highest they have been before the conservatorship started.
From their substantial annual profit, Freddie Mac will deposit $10.4 billion into the U.S. treasury as it continues to pay down its debt to the federal government.  Once Fannie Mae deposits its $7.2 billion into the treasury from its last year’s profits, American taxpayers will finally be ahead on its bailout costs.

The speed at which Freddie Mac was able to recover is a good sign for the American economy.  The fact that after only a few short years, they are able to show a profit means that the housing crisis is finally coming to a close.

photo credit via roberthuffstutter

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