Freddie Mac is a government sponsored enterprise, or GSE, that provides fixed-rate home mortgages, primarily for individuals who fall within the low and moderate income brackets. The idea of home ownership has long been considered central to the United States economy and the corporation was established as a competitive private sector/public sector combination alternative to its original Fannie Mae counterpart. Freddie Mac is officially named the Federal Home Loan Mortgage Corporation, but was given a common acronym similar to its prior counterpart.
Freddie Mac was created in 1970 when Congress enacted the Emergency Home Finance Act in an effort to expand secondary mortgage markets in the U.S., bundling the purchased mortgages and selling them as securities on the open market. Its sister corporation, Fannie Mae, had been created in 1938 as part of the New Deal attempting to increase the level of home ownership in the United States.
The original attempt to reinvigorate this problem was done in 1954 with the establishment of Ginnie Mae, also known as the Government National Mortgage Association. This GSE only applied to government workers and veterans. By initiating the split, Freddie Mac offered a new mortgage outlet for families who qualified according to the loan parameters regardless of government employment status. This move helped those who could not qualify for loans in the primary mortgage market.
It was effectively an apparatus that increased investment in housing via the families who qualified that would not have been investing in a new home otherwise. The economic impetus behind the program was to allow the general population an alternative avenue to save by purchasing a home that increased in value during the life of the mortgage and providing a stable housing market in the process.
With the creation of Freddie Mac, the Fannie Mae Corporation was then allowed to borrow from foreign investors after the restructuring. The official name of the Fannie Mae Corporation is the Federal National Mortgage Association and operated as a secondary mortgage provider monopoly until the 1970 legislation that created Freddie Mac. The co-existence of the two GSEs worked rather effectively until the housing crisis of 2007 was brought front and center to the attention of the United States government.
Freddie Mac went into conservatorship in September of 2008, along with its counterpart, but recent quarterly reports show Freddie Mac in better financial condition for the time being. There is evidence that both programs will be dissolved as soon as a proper course of action is determined, as recommended recently by both the Obama Administration and the Republican leadership in Congress.
Freddie Mac actually reported a profit during the 1st quarter of 2011, as Freddie Mac was able to pay its dividend to the U.S. Treasury of $1.6 billion with its own money. In addition, the GSA reported a profit margin of $1.2 billion. Fannie Mae was $8.5 billion short, but had a significantly larger amount of toxic mortgages.
The best idea would simply to do away with government interference in the housing market. Every interference is a price-fix and each price fix distorts the economy. Eventually a recession or depression is caused. It will happen again.