The Federal Home Loan Mortgage Corporation (FHLMC) is more commonly known as Freddie Mac. It was created by the Emergency Home Finance Act of 1970 to create a secondary market for home mortgages. It then packages these into mortgage-backed securities, and resells them to investors.
Freddie Mac affects the U.S. economy by lowering interest rates, which makes more loans available to more new homeowners. For example, lowering the rate from 8.5% to 8% allows 791,000 low- and moderate-income families to buy homes. Freddie Mac also makes interest rates more consistent. Across the nation’s cities, mortgage rates varied by as much as 1.7% in 1970. Today, that difference is only 0.1%.
Freddie Mac has come under criticism because its ties to the U.S. government allow it to borrow money at interest rates lower than those available to other financial institutions. With this funding advantage, it issues large amounts of debt (known in the market place as agency debt or agencies), and in turn purchases and holds a huge portfolio of mortgages known as its retained portfolio. Many people believe that the size of the retained portfolio poses a great deal of systematic risk to the entire U.S.