The Federal Home Loan Mortgage Corporation (FHLMC), known as Freddie Mac, is a public government-sponsored enterprise(GSE), headquartered in the Tyson's Corner CDP in unincorporated Fairfax County, Virginia.

The FHLMC was created in 1970 to expand the secondary market for mortgages in the US. Along with Fannie Mae, Freddie Mac buys mortgages on the secondary market, pools them, and sells them as a mortgage-backed security to investors on the open market. This secondary mortgage market increases the supply of money available for mortgage lending and increases the money available for new home purchases. The name, "Freddie Mac", is a variant of the initialism of the company's full name that had been adopted officially for ease of identification.

On September 7, 2008, Federal Housing Finance Agency (FHFA) director James B. Lockhart III announced he had put Fannie Maeand Freddie Mac under the conservatorship of the FHFA (see Federal takeover of Fannie Mae and Freddie Mac). The action has been described as "one of the most sweeping government interventions in private financial markets in decades.

Moody's gave Freddie Mac's preferred stock an investment grade rating of A1 until August 22, 2008, when Warren Buffett said publicly that both Freddie Mac and Fannie Mae had tried to attract him and others. Moody's changed the credit rating on that day to Baa3, the lowest investment grade credit rating. Freddie's senior debt credit rating remains Aaa/AAA from each of the major ratings agencies Moody's, S&P, and Fitch.

As of the start of the conservatorship, the United States Department of the Treasury had contracted to acquire US$1 billion in Freddie Mac senior preferred stock, paying at a rate of 10% per year, and the total investment may subsequently rise to as much as US$100 billion.

Home loan interest rates may go down as a result and owners of Freddie Mac debt and the Asian central banks who had increased their holdings in these bonds may be protected. Shares of Freddie Mac stock, however, plummeted to about one U.S. dollar on September 8, 2008, and dropped a further 50% on June 16, 2010, when the Federal Housing Finance Agency ordered the stocks delisted. In 2008, the yield on U.S Treasury securities rose in anticipation of increased U.S. federal debt.

As mortgage originators began to distribute more and more of their loans through private label MBS, GSEs lost the ability to monitor and control mortgage originators. Competition between the GSEs and private securitizers for loans further undermined GSEs power and strengthened mortgage originators. This contributed to a decline in underwriting standards and was a major cause of the financial crisis.

Investment bank securitizers were more willing to securitize risky loans because they generally retained minimal risk. Whereas the GSEs guaranteed the performance of their MBS, private

securitizers generally did not, and might only retain a thin slice of risk. Often, banks would offload this risk to insurance companies or other counterparties through credit default swaps, making their actual risk exposures extremely difficult for investors and creditors to discern.

From 2001-2003, financial institutions experienced high earnings due to an unprecedented re-financing boom brought about by historically low interest rates. When interest rates eventually rose, financial institutions sought to maintain their elevated earnings levels with a shift toward riskier mortgages and private label MBS distribution. Earnings depended on volume, so maintaining elevated earnings levels necessitated expanding the borrower pool using lower underwriting standards and new products that the GSEs would not (initially) securitize. Thus, the shift away from GSE securitization to private-label securitization (PLS) also corresponded with a shift in mortgage product type, from traditional, amortizing, fixed-rate mortgages (FRMs) to nontraditional, structurally riskier, nonamortizing, adjustable-rate mortgages (ARMs), and in the start of a sharp deterioration inmortgage underwriting standards. The growth of PLS, however, forced the GSEs to lower their underwriting standards in an attempt to reclaim lost market share to please their private shareholders. Shareholder pressure pushed the GSEs into competition with PLS for market share, and the GSEs loosened their guarantee business underwriting standards in order to compete. In contrast, the wholly public FHA/Ginnie Mae maintained their underwriting standards and instead ceded market share.

The growth of private-label securitization and lack of regulation in this part of the market resulted in the oversupply of underpriced housing finance that led, in 2006, to an increasing number of borrowers, often with poor credit, who were unable to pay their mortgages—particularly with adjustable rate mortgages (ARM)—caused a precipitous increase in home foreclosures. As a result, home prices declined as increasing foreclosures added to the already large inventory of homes and stricter lending standards made it more and more difficult for borrowers to get mortgages. This depreciation in home prices led to growing losses for the GSEs, which back the majority of US mortgages. In July 2008, the government attempted to ease market fears by reiterating their view that "Fannie Mae and Freddie Mac play a central role in the US housing finance system. The U.S. Treasury Department and the Federal Reserve took steps to bolster confidence in the corporations, including granting both corporations access to Federal Reserve low-interest loans (at similar rates as commercial banks) and removing the prohibition on the Treasury Department to purchase the GSEs' stock. Despite these efforts, by August 2008, shares of both Fannie Mae and Freddie Mac had tumbled more than 90% from their one-year prior levels.

In 2003, Freddie Mac revealed that it had understated earnings by almost $5 billion, one of the largest corporate restatements in U.S. history. As a result, in November, it was fined $125 million—an amount called "peanuts" by Forbes.

On April 18, 2006, Freddie Mac was fined $3.8 million, by far the largest amount ever assessed by the Federal Election Commission, as a result of illegal campaign contributions. Freddie Mac was accused of illegally using corporate resources between 2000 and 2003 for 85 fundraisers that collected about $1.7 million for federal candidates. Much of the illegal fund raising benefited members of the House Financial Services Committee, a panel whose decisions can affect Freddie Mac. Notably, Freddie Mac held more than 40 fundraisers for House Financial Services Chairman Michael Oxley, R-Ohio.

Freddie Mac pays $50M to settle fraud charges

Mortgage finance company Freddie Mac FRE will pay $50 million to settle federal charges that it fraudulently misstated earnings over a four-year period.

The Securities and Exchange Commission announced the settlement Thursday. McLean, Va.-based Freddie Mac neither admitted nor denied wrongdoing in the accord but did agree to refrain from future violations of the securities laws.

Four former Freddie Mac executives settled the SEC's negligent conduct charges by agreeing to pay a total of $515,000 in civil fines and to make restitution totaling $275,548. They are former president and chief operating officer David Glenn, ex-chief financial officer Vaughn Clarke, and former senior vice presidents Robert Dean and Nazir Dossani.

"We take these charges seriously, and that's why the Freddie Mac of today is a very different company than the Freddie Mac of the past," said Richard Syron, Freddie Mac's chairman and chief executive officer.

An accounting scandal erupted at the government-sponsored company in June 2003 when it disclosed that it had misstated earnings by some $5 billion — mostly underreported — for 2000-2002 to smooth quarterly volatility in earnings and meet Wall Street expectations.

The company's top executives — Glenn, Clarke and then-chairman and chief executive Leland Brendsel — were ousted. The events shocked Wall Street, where Freddie Mac, the nation's second-largest buyer and guarantor of home mortgages, long had enjoyed a reputation as a steady performer and reliable corporate player.

Freddie paid a then-record $125 million civil fine in 2003 in a settlement with the Office of Federal Housing Enterprise Oversight, which blamed management misconduct for the faulty accounting.

In September 2004, an equally stunning accounting scandal came to light at No. 1 mortgage finance company Fannie Mae. Regulators eventually imposed limits on the two

companies' multibillion-dollar mortgage debt holdings, which they have been seeking to have lifted as a way to provide cash to the mortgage market in the recent turmoil.

Fannie and Freddie were created by Congress to make mortgages affordable and pump cash into the market by buying blocks of home loans from lenders and bundling them into securities for sale to investors worldwide.

In a lawsuit filed in federal court in Washington, the SEC said Freddie Mac "engaged in a fraudulent scheme that deceived investors about its true performance, profitability and growth trends."

"As has been seen in so many cases, Freddie Mac's departure from proper accounting practices was the result of a corporate culture that sought stable earnings growth at any cost," SEC Enforcement Director Linda Thomsen said in a statement.

The SEC said Thursday that the $50 million Freddie Mac agreed to pay will be distributed to shareholders injured by the alleged accounting fraud. The settlement with the company is subject to court approval.

Shares of Freddie Mac rose 44 cents, or 0.7%, to $59.99. Over the past 52 weeks, the company's stock has traded between $54.97 and $71.92.