What is Freddie Mac Loan?

IMG_3605 - What is Freddie Mac loan. 2017_02_04

Freddie Mac is nickname for Federal Home Loan Mortgage Corporation (or FHLMC). This is a government sponsored enterprise.

Freddie Mac buys mortgages from banks, credit unions and other lenders, combines and packages them together into similar type mortgage-backed securities, then sell the shares of these mortgages to investors.

Without the Freddie Mac, lenders would have to keep loans on their books till they are paid of. But then banks would not have enough money to make new loans for new borrowers. Lenders use the money received from Freddie Mac to make new mortgages to home-buyers.

Then Freddie Mac resells the mortgage backed securities to investors on the secondary market. The shares of the packaged securities are bought by pension funds, insurance companies and mutual funds. Lenders get the money and can make new loans for new borrowers. That starts this process all over again.