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What is Freddie Mac?

Fannie Mae and Freddie Mac are two government sponsored organisations which very much go hand in hand, between them having exposure to over 50% of the US mortgage market. But what exactly is Freddie Mac and what does it do?

As we covered in our earlier post, Fannie Mae held something of a monopoly in the US mortgage market for the first 30 years of its life. Under pressure to create a more competitive market the US authorities introduced Freddie Mac to the scene and while it too was sponsored by the government they were actually two separate entities looking to create more of a competitive edge in the market.

In reality Freddie Mac offers a very similar service to that afforded to Fannie Mae by guaranteeing loans for finance companies (for a fee) and buying up mortgage arrangements in the secondary market, repacking them and selling them on to investors. Freddie Mac is all about backing financial institutions and ensuring that there is always support even in distressed situations.

The move by the US authorities to bring Fannie Mae and Freddie Mac under direct government control is very bold and has the potential to be either very successful of an expense gamble. Most analysts are forecasting an improved confidence in the markets after this move but we will soon see how it all pans out!

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