Federal home Loan MortgageHome Loan Mortgage
Department of Housing and Urban Development (HUD) and the Office of Federal Housing Enterprise Obsight (OFHEO).
Not only do these organisations guarantee the sound finances of Freddie Mac, they also demand that Freddie Mac obtain a certain proportion of low and middle incomes mortgage loans, which will facilitate mortgage credit in these emerging market countries. The Freddie Mac and the credit processFreddie Mac does not borrow from home buyers. Rather, she buys mortgage loans from creditors.
When a home buyer proves the solvency and means to obtain a mortgage from a creditor (e.g. house buyer, house buyer, mortgage broker, etc.), the creditor consents to transferring funds to the borrower's current accounts and the borrowing party consents to repaying to the creditor according to a fixed timetable. Lenders can then decide whether to keep this mortgage in their portfolios or whether to resell it on the aftermarket.
And Freddie Mac is an important purchaser of these mortgage loans. Moreover, because this will create a stable mortgage pool, interest on those loans will remain highly attractive and mortgage availability will be easy. The Freddie Mac SecuritiesFreddie Mac packs the mortgage it acquires into groups (so-called "pooling of mortgages") with similar features (i.e. similar interest rate, maturity or creditworthiness).
Subsequently, it will sell shares that have an interest in these credits. Those transferable securities, known as mortgage-backed transferable securities, shall be offered to free float purchasers. Freddie Mac uses the proceeds from these disposals to buy further mortgage assets. Once the landlord makes his mortgage payments each month to the initial borrower or mortgage bank, the borrower or mortgage bank retains a charge and transmits the remainder of the amount to Freddie Mac.
In turn, Freddie Mac charges a commission and gives the rest of the owner money to the investor holding Freddie Mac's mortgage-backed stock. With Freddie Mac, interest and capital on its mortgage-backed bonds are guaranteed to be paid on schedule - meaning that if borrower fail to make their mortgage repayments on schedule, Freddie Mac will continue to make its repayments to investors .
It' important to remember that the US Freddie Mac does not give any warranty. This means that if Freddie Mac cannot meet his commitments to his investor, the federal authorities have no responsibilities to save him. But Freddie Mac has a line of credit in place with the federal government, though, and in general investment firms believe that the federal federal government would not allow Freddie Mac to fail with any of his bonds.
Freddie Mac bonds usually have a very high solvency rating, and they can often take up cash at very cheap interest rates. However, Freddie Mac bonds can also be used as a means of financing.