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Overview of Freddie Mac (FMCC)
Freddie Mac, officially known as the Federal Home Loan Mortgage Corporation (FMCC), is a government-sponsored enterprise (GSE) established by Congress in 1970 to promote liquidity, stability, and affordability in the U.S. housing market. The company operates as a financial intermediary, purchasing mortgages from lenders, securitizing them into mortgage-backed securities (MBS), and selling these securities to global investors. This process enables lenders to replenish their funds and extend additional mortgages, thereby supporting homeownership and rental housing across the nation.
Core Business Operations
Freddie Mac's business model centers around two primary market segments: Single-Family Housing and Multifamily Housing. In the single-family segment, Freddie Mac purchases conventional, conforming loans, ensuring liquidity for lenders while promoting homeownership. In the multifamily segment, the company provides financing for rental housing, with a strong emphasis on affordability for low- to moderate-income families. Freddie Mac securitizes approximately 90% of the multifamily loans it purchases, transferring most of the associated credit risk to private investors.
Revenue Streams and Credit Risk Transfer
Freddie Mac generates revenue through several channels, including guarantee fees for securitized mortgages, interest income from retained portfolios, and proceeds from its innovative Credit Risk Transfer (CRT) programs. These programs, such as Structured Agency Credit Risk (STACR®) notes and Agency Credit Insurance Structure® (ACIS®), transfer credit risk from U.S. taxpayers to private capital markets. This not only protects taxpayers but also enhances market stability by diversifying risk globally.
Market Significance
As a GSE, Freddie Mac plays a pivotal role in the housing finance ecosystem. Its activities promote liquidity and stability across economic cycles, ensuring that lenders have access to capital even during periods of market stress. The company has financed millions of homes and rental units since its inception, making housing more accessible and affordable for families nationwide. Freddie Mac's focus on mission-driven initiatives, such as workforce housing and low-income rental units, underscores its commitment to equity and affordability.
Industry Context and Challenges
Freddie Mac operates in a highly regulated and dynamic industry influenced by macroeconomic factors such as interest rates, housing supply and demand, and demographic trends. Key challenges include managing credit and interest rate risks, adapting to regulatory changes, and addressing the persistent housing affordability crisis. Despite these challenges, Freddie Mac remains a cornerstone of the U.S. housing finance system, leveraging its scale, expertise, and innovative programs to fulfill its mission.
Competitive Landscape
Freddie Mac's primary competitor is Fannie Mae, another GSE with a similar mandate. Together, they dominate the secondary mortgage market. However, Freddie Mac also faces competition from private mortgage insurers, banks, and other financial institutions that provide housing finance solutions. Freddie Mac differentiates itself through its extensive CRT programs, which are considered industry-leading, and its strong focus on mission-driven housing initiatives.
Conclusion
Freddie Mac is a critical player in the U.S. housing market, balancing its commercial operations with a public mission to make housing more accessible and affordable. Through its innovative securitization and credit risk transfer mechanisms, the company not only supports homeownership and rental housing but also contributes to the overall stability and resilience of the housing finance system.
Freddie Mac forecasts that low mortgage rates supporting the housing market will gradually increase later in 2021. Despite recent highs, indicators show softening demand in mortgage applications.
Total mortgage origination is expected at $3.9 trillion for 2021 and decline to $2.6 trillion in 2022. The average 30-year fixed-rate mortgage is forecasted at 3.1% in 2021 and 3.7% in 2022. House prices are anticipated to grow by 12.1% in 2021, slowing to 5.3% in 2022. Home sales are projected at 6.9 million in 2021. Refinance originations are set to decrease significantly from $2.2 trillion in 2021 to $713 billion in 2022.
Freddie Mac (OTCQB: FMCC) reported that the average 30-year fixed-rate mortgage (FRM) fell to 2.88% for the week ending July 15, 2021, down from 2.90% the previous week and 2.98% a year ago. This decline marks the third consecutive week of falling mortgage rates, providing modest relief to homebuyers amid strong home appreciation and limited inventory. The 15-year FRM averaged 2.22% and the 5-year adjustable-rate mortgage (ARM) averaged 2.47% during the week. Freddie Mac aims to enhance housing accessibility through mortgage capital provision.
Freddie Mac (OTCQB: FMCC) has priced approximately $912 million in new Structured Pass-Through Certificates (K-F116 Certificates), set to settle around July 22, 2021. These K Certificates are backed by floating-rate multifamily mortgages with SOFR-based rates and 7-year terms. Key details include a weighted average life of 6.66 years and a discount margin of 30-day SOFR average + 21 basis points. Co-lead managers for this offering are BofA Securities and Morgan Stanley. This move reflects Freddie Mac's ongoing strategy to mitigate risks associated with taxpayer-funded mortgage programs.
Freddie Mac (OTCQB: FMCC) reported a decrease in mortgage rates, with the 30-year fixed-rate mortgage averaging 2.90% for the week ending July 8, 2021, down from 2.98% the previous week. The 15-year fixed-rate mortgage also fell to 2.20%, while the 5-year ARM averaged 2.52%. This decline in rates follows a drop in U.S. Treasury yields and suggests potential opportunities for homebuyers and refinance borrowers. Freddie Mac’s Chief Economist, Sam Khater, indicated that economic growth may lead to rising interest rates in the future.
Freddie Mac (OTCQB: FMCC) has announced the pricing of a new offering of approximately $900 million in Structured Pass-Through Certificates, known as the K-F115 Certificates. These certificates are backed by floating-rate multifamily mortgages indexed to the Secured Overnight Financing Rate (SOFR) with a 10-year term. The offering is set to settle around July 16, 2021. The K-F115 Certificates will include a senior principal and interest class and will not be rated. This move is part of Freddie Mac's strategy to manage risk by involving private investors.
Freddie Mac (OTCQB: FMCC) announced that the 30-year fixed-rate mortgage averaged 2.98% for the week ending July 1, 2021, down from 3.02% the previous week. The 15-year fixed-rate mortgage averaged 2.26%, a decrease from 2.34%. In contrast, the 5-year Treasury-indexed hybrid ARM rose slightly to 2.54% from 2.53%. Freddie Mac's Chief Economist noted steady economic growth but a slowdown in the housing market due to decreased affordability and inventory.
Freddie Mac (OTCQB: FMCC) has released a white paper analyzing the implications of the end of eviction moratoriums and the critical role of rental assistance amid the economic recovery from COVID-19. The report indicates that while eviction filings dropped significantly during the pandemic, renters still face back rent obligations. Federal funding of approximately $47 billion is available for rental assistance, but effective distribution is vital. Freddie Mac emphasizes the need for awareness among renters and property owners about available support as the nation transitions into a post-pandemic environment.
Freddie Mac (OTCQB: FMCC) announced the pricing of a new offering of Structured Pass-Through Certificates known as K-743 Certificates, backed by fixed-rate multifamily mortgages with 7-year terms. This offering is anticipated to total approximately $743 million, with settlement expected around June 30, 2021. The K-743 Trust will issue additional non-guaranteed classes, while the K-743 Certificates aim to provide stable cash flows and risk transfer from taxpayers to private investors. Major co-lead managers include J.P. Morgan Securities LLC and Amherst Pierpont Securities LLC.
Freddie Mac (FMCC) released its Monthly Volume Summary for May 2021, detailing mortgage-related portfolios, securities issuance, and risk management efforts. The report highlights Freddie Mac's role in enhancing housing accessibility for millions by providing mortgage capital. Established by Congress in 1970, the organization aims to improve the housing finance system for homebuyers, renters, and lenders. For further details, visit FreddieMac.com.
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