The Federal Home Loan Mortgage Corporation (Freddie Mac) was created in 1970 as a nonprofit, federally chartered institution controlled by the Federal Home Loan Bank System. Like Fannie Mae, Freddie Mac is currently under the control of the FHA. Unlike, Fannie Mae, Freddie Mac does not guarantee payment of its mortgages. The primary function of Freddie Mac was to help savings and loans banks acquire additional funds for lending in the mortgage market by purchasing the mortgages they already held. Freddie Mac may deal in FHA, VA, and conventional mortgages. While Fannie Mae emphasizes the purchase of mortgage loans, Freddie Mac also actively sells the mortgage loans from its portfolio, thus acting as a conduit for mortgage investments. The funds generated by the sale of the mortgages are then used to purchase more mortgages. Freddie Mac issues its own mortgage backed securities, which are backed by the conventional mortgages it purchases. Freddie Mac purchases mortgages through its immediate delivery program or its forward commitment purchase program. In the immediate delivery program, the lender must deliver the mortgages that Freddie Mac has agreed to purchase within sixty days. Failure to deliver can mean that a seller will be banned from further Freddie Mac sales for two years. The immediate loan delivery program can involve either whole loan purchases or participation purchases. Under the forward commitment purchase program, commitments are made for six and eight month periods, but the sale and delivery of mortgages is at the option of lenders, such as NJ Mortgage. There is also a non refundable commitment fee payable to Freddie Mac.
Ginnie Mae is another player in the secondary mortgage market. The primary function of Ginnie Mae is promoting investment by guaranteeing the payment of principal and interest payment of FHA and VA mortgages through its mortgage backed securities program. This program is supported and insured by the Federal Government.
The actions of Freddie Mac and Ginnie Mae arguably were a big contributing factor to the mortgage crisis of 2007 and 2008 and resulting real estate market crash (and economic recession). NJ Mortgage supports the notion that business and government leaders should come together and discuss dramatic reforms on these two institutions before another cycle of poor lending decisions begins.