How does Freddie Mac work?

Freddie Mac, also known as the Federal Home Loan Mortgage Corporation, plays a vital role in the US housing finance system. As a government-sponsored enterprise, its primary function is to provide stability and liquidity in the mortgage market. Freddie Mac achieves this by purchasing and guaranteeing mortgages originated by lenders, primarily banks and other financial institutions. By doing so, it reduces the risk for lenders, enabling them to provide more affordable home loans to borrowers. Freddie Mac then bundles these mortgage loans and sells them to investors as mortgage-backed securities, thus transferring the risk from lenders to investors. Additionally, it establishes underwriting guidelines and monitors compliance to ensure the mortgages it purchases meet specific standards. Ultimately, Freddie Mac's work helps facilitate homeownership and ensures the availability of capital for borrowers, promoting a healthy housing market and overall economic stability.