Loan Crisis Entangles Freddie Mac

Loan Crisis Entangles Freddie Mac

Business
Loan Crisis Entangles Freddie Mac
By MICHAEL M. GRYNBAUM
Published: November 21, 2007
Losses at the big mortgage finance company on Tuesday underscored the continuing turmoil in the housing industry.

Excerpt:

Freddie Mac, the big mortgage finance company, posted a $2 billion loss for the third quarter and warned that it might not have enough capital on hand to cover the mandatory reserves for its mortgage commitments.

The company has been battered by a rising wave of foreclosures tied to subprime mortgage defaults, and it is “seriously considering” cutting its stock dividend.

Freddie’s misfortune is particularly rattling because the company is considered something of a backstop for the lending industry. With its implied guarantee of government backing, the housing market looks to Freddie, and its bigger sibling, Fannie Mae, to provide stable credit and financing for a wide swath of mortgages.

But yesterday’s earnings report showed that even the gold standard of lending agencies was not immune to the toxic subprime securities that have infected much of the market.

Wikipedia: Federal Home Loan Mortgage Corporation

Excerpt:

The FHLMC was created in 1970 to expand the secondary market for mortgages in the United States. Along with other GSEs, Freddie Mac buys mortgages on the secondary market, pools them, and sells them as mortgage-backed securities to investors on the open market.

This secondary mortgage market helps to replenish the supply of lendable money for mortgages and ensures that money continues to be available for new home purchases. The name "Freddie Mac" is a creative acronym-portmanteau of the company's full name that has been adopted officially for ease of identification.