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Overview of Freddie Mac (FMCC)
Freddie Mac (FMCC) is a pivotal institution in the United States housing finance landscape. With a mission to make home possible for millions of families, the company provides essential mortgage capital to lenders, facilitating liquidity in the market while ensuring affordability and stability. Operating from a foundation established by congressional mandate in 1970, Freddie Mac has continuously supported both single-family and multifamily segments by offering reliable financial products and risk management solutions.
Core Business and Operations
The company’s core business revolves around securing liquidity and promoting stability within the housing market. It achieves this through:
- Mortgage Capital Provision: Freddie Mac supplies significant mortgage capital to lending institutions, thus enabling home purchases and refinancing activities.
- Credit Risk Transfer: Through innovative instruments like the Structured Agency Credit Risk (STACR) notes and Agency Credit Insurance Structure (ACIS) programs, the company transfers credit risk from taxpayers to private global capital, enhancing market stability.
- Securitization: By securitizing mortgage loans, Freddie Mac effectively offloads risk and supports continuous capital flow into the housing market.
Market Position and Industry Impact
Freddie Mac holds a strategic position within the competitive housing finance market. It is recognized for its robust and diversified business model that not only supports direct mortgage financing but also strengthens the overall lending ecosystem. The company’s dynamic risk management frameworks and capital market engagements provide it with significant resilience during various economic cycles. Its role in securitizing a broad spectrum of mortgage loans underlines its commitment to stability, ensuring that both lenders and investors have access to reliable, long-term financial products.
Business Model and Value Proposition
The company’s business model is underpinned by key components aimed at sustaining market confidence and enhancing affordability:
- Providing Mortgage Capital: By furnishing lenders with the necessary funds, Freddie Mac facilitates home ownership and rental viability for millions of households.
- Innovative Risk Transfer Mechanisms: Credit risk transfer programs protect taxpayers and enable the distribution of financial risk to private investors, showcasing a tailored approach to managing market uncertainties.
- Securitization of Mortgage Loans: This process not only boosts liquidity but also supports broader investment frameworks, thereby integrating the housing finance system with global capital markets.
Industry Relevance and Competitive Landscape
Within the housing finance sector, Freddie Mac is both influential and unique. By leveraging advanced financial instruments, the company mitigates common market challenges such as liquidity gaps and heightened credit risk. It remains a primary contributor to ensuring that mortgage markets are resilient, particularly in times of economic turbulence. Compared to its peers, Freddie Mac distinguishes itself through a balanced combination of governmental oversight, rigorous market discipline, and extensive experience in risk transfer. This unique integration of public purpose with private capital infusion reinforces its authoritativeness and trustworthiness in the industry.
Expert Insights into Freddie Mac's Strategic Approach
The company’s approach is built on a foundation of deep industry knowledge and innovative financial strategies. By continuously refining its risk transfer mechanisms and maintaining strict regulatory alignment, Freddie Mac has cemented its role as a facilitator of affordable housing solutions. This dual commitment—supporting both the availability of mortgage capital and the overall stability of the housing market—forms the cornerstone of its value proposition and operational excellence.
Conclusion
Freddie Mac (FMCC) remains a critical entity in ensuring access to affordable housing across the nation. Through its robust capital provision, sophisticated securitization processes, and strategic risk transfer programs, the company delivers a comprehensive and sustainable framework that benefits lenders, investors, and homebuyers alike. Its enduring dedication to liquidity, stability, and affordability underscores its significance in the U.S. housing finance sector.
Freddie Mac's Primary Mortgage Market Survey® (PMMS®) reveals a decline in mortgage rates, with the 30-year fixed-rate mortgage (FRM) averaging 6.09%, down from 6.20% last week and 7.19% a year ago. The 15-year FRM averaged 5.15%, decreased from 5.27% last week and 6.54% a year ago.
Sam Khater, Freddie Mac's Chief Economist, notes that rates are approaching the 6% mark, stimulating purchase and refinance demand. He expects rates to fall further following the Federal Reserve's first rate cut in over four years, potentially boosting housing market activity.
The PMMS® focuses on conventional, conforming home purchase loans for borrowers with 20% down payment and excellent credit. Freddie Mac's mission is to promote liquidity, stability, affordability, and equity in the housing market throughout economic cycles.
Freddie Mac's Multifamily Apartment Investment Market Index® (AIMI®) rose 0.3% quarter-over-quarter and 2.2% year-over-year nationwide in Q2 2024. The quarter saw mixed results across metro areas, with 14 markets up, 9 down, and 2 unchanged. Key findings include:
- Net operating income (NOI) grew in 19 metros and nationally quarter-over-quarter, but fell in 14 of 25 markets year-over-year.
- Property prices dropped in most markets quarterly and all markets annually, declining 8.3% nationally.
- Mortgage rates increased by 21 basis points in Q2 and 64 basis points year-over-year.
The slight AIMI growth indicates the market is working towards stabilization after significant volatility. Higher mortgage rates were offset by lower property prices and modest rental income growth.
Freddie Mac's latest Primary Mortgage Market Survey® reveals a significant drop in mortgage rates, with the 30-year fixed-rate mortgage (FRM) averaging 6.20%, the lowest since February 2023. This represents a decline of over half a percent in the past six weeks. The 15-year FRM also decreased to 5.27%.
Despite the improving rate environment, Chief Economist Sam Khater notes that potential buyers remain hesitant due to high house prices and persistent supply shortages. Compared to a year ago, both 30-year and 15-year FRMs show substantial decreases from 7.18% and 6.51%, respectively.
Freddie Mac (OTCQB: FMCC) has announced the pricing of its second Seasoned Credit Risk Transfer Trust (SCRT) offering of 2024, a $658 million securitization backed by seasoned re-performing loans (RPLs). The offering includes $625 million in guaranteed senior certificates and $33 million in non-guaranteed mezzanine and subordinate certificates. The transaction, expected to settle on September 13, 2024, involves 3,762 seasoned fixed-, step-, and adjustable-rate RPLs.
This SCRT program is part of Freddie Mac's strategy to reduce less liquid assets and transfer credit and market risk. To date, Freddie Mac has sold over $10.3 billion of Non-Performing Loans and securitized approximately $78.6 billion of RPLs. The underlying loans will be serviced by Newrez , prioritizing borrower retention options and promoting neighborhood stability in case of default.
Freddie Mac (OTCQB: FMCC) has appointed Diana Reid as its new CEO, effective immediately. Reid, a veteran with over 40 years of experience in banking, real estate, capital markets, and affordable housing, will also join the company's Board of Directors. She replaces Interim CEO Michael Hutchins, who will continue as president. Reid's extensive background includes nearly 12 years leading PNC Financial Services Group's real estate business division and founding Beekman Advisors. The appointment comes after a comprehensive search by Freddie Mac's Board, with Board Chair Lance Drummond expressing confidence in Reid's ability to further the company's mission-driven work in housing finance.
Freddie Mac (OTCQB: FMCC) has announced the results of its tender offer for certain STACR® (Structured Agency Credit Risk) Notes. As of September 5, 2024, approximately $1.3 billion aggregate original principal amount of Notes had been validly tendered and not properly withdrawn. The offer was conducted in accordance with the conditions set forth in the Offer to Purchase dated August 29, 2024.
The settlement date for the accepted Notes is expected to be September 9, 2024. Any Notes tendered using the Notice of Guaranteed Delivery are expected to be purchased on September 11, 2024. Citigroup Global Markets Inc. and BofA Securities, Inc. are lead dealer managers, while Academy Securities, Inc. is co-dealer manager for the offer.
Freddie Mac's Primary Mortgage Market Survey® (PMMS®) shows mortgage rates remained flat this week, with the 30-year fixed-rate mortgage (FRM) averaging 6.35%, unchanged from last week. The 15-year FRM averaged 5.47%, down from 5.51% last week. Compared to a year ago, both rates are significantly lower, with the 30-year FRM down from 7.12% and the 15-year FRM down from 6.52%.
Sam Khater, Freddie Mac's Chief Economist, noted that markets are awaiting the August jobs report. Despite lower rates, home sales have been lackluster. However, homeowners who bought in recent years are taking advantage of declining rates to lower their monthly payments through refinancing.
Freddie Mac (OTCQB: FMCC) has announced a $233 million non-performing loan (NPL) sale via auction. The offering includes a Standard Pool Offering (SPO) and two Extended Timeline Pool Offerings (EXPO) targeting smaller investors, including non-profits and Minority, Women, Disabled, LGBTQ+, Veteran or Service-Disabled Veteran-Owned Businesses (MWDOBs). Bids are due by September 26, 2024 for the SPO pool and October 10, 2024 for the EXPO pools.
The NPLs consist of seasoned, deeply delinquent residential first lien whole loans from Freddie Mac's mortgage-related investments portfolio. This sale is part of Freddie Mac's strategy to reduce less-liquid assets in an economically sensible way. Since 2011, Freddie Mac has sold $10.3 billion of NPLs and securitized approximately $78.6 billion of re-performing loans (RPLs).
Freddie Mac's Primary Mortgage Market Survey® reveals a decline in mortgage rates, with the 30-year fixed-rate mortgage (FRM) averaging 6.35%, down from 6.46% last week and 7.18% a year ago. The 15-year FRM also dropped to 5.51% from 5.62% last week and 6.55% a year ago. Chief Economist Sam Khater attributes this decrease to expectations of a Fed rate cut.
Khater predicts rates will continue to fall but notes that a rebound in purchase activity remains elusive until further declines occur. The survey focuses on conventional, conforming home purchase loans for borrowers with 20% down payment and excellent credit. Freddie Mac aims to promote liquidity, stability, affordability, and equity in the housing market throughout economic cycles.
Freddie Mac (OTCQB: FMCC) has announced a fixed-price cash tender offer for the purchase of any and all of certain STACR® (Structured Agency Credit Risk) Notes. The offer begins on August 29, 2024, and expires at 5 p.m. New York City time on September 5, 2024, unless extended. Freddie Mac has engaged Citigroup Global Markets Inc. and BofA Securities, Inc. as lead dealer managers and Academy Securities, Inc. as co-dealer manager for the offer.
The tender offer includes various STACR Notes with original principal amounts ranging from $20 million to $447 million. The Tender Offer Consideration per $1,000 original principal amount varies from $1,001.50 to $1,160.00, depending on the specific Note. Holders who tender their Notes will receive accrued and unpaid interest. The expected Settlement Date is September 9, 2024.
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