On This Day In Finance: July 24 - Freddie Mac Is Born
On On July 24, 1970, the United States Congress established the charter for the Federal Home Loan Mortgage Corporation, known today as Freddie Mac. Freddie Mac was created to increase the secondary mortgage market and level the playing field across the nation in relation to the availability of interest rates and mortgages.

Prior to Freddie Mac, the Federal National Mortgage Association (Fannie Mae) was the only government institution that operated in the secondary mortgage market by buying mortgages and insuring the value of those mortgages. Established in 1938 during the Great Depression, Fannie Mae paved the way for the mortgage market to become accessible to all Americans. But by the late 1960s, Fannie Mae had grown too large to ensure competitiveness within the industry, prompting Congress to establish Freddie Mac.

Freddie Mac began as a semi-public company that raised its initial startup funds by issuing non-voting to the largest federal home loan banks in the country, and officially became a public company in 1989 when its stock was converted to public shares in 1989. By buying mortgages from banks and other lenders and subsequently securitizing these mortgage backed securities in the secondary market, Freddie Mac's goal is to increase the lending capabilities and money available to lenders to award mortgages to more and more Americans. However Freddie Mac's large position in the secondary mortgage market had left its future in peril.

In 2008, it was estimated that Freddie Mac and Fannie Mae either owned or guaranteed close to half of the mortgage market in the United States, leaving the companies highly susceptible to the subprime mortgage crisis that rocked the markets in 2008 and 2009. In the summer of 2008, the United States government took initial measures to aide the companies by extending credit limits and offering Federal Reserve low-interest loans. However in September of 2008, seeing the writing on the wall for the mortgage giants, the United States government placed the companies into conservatorship under the guidance of the Federal Housing Finance Agency. The government bailout was the first in a line of monetary life lines given to U.S. companies during the subprime crisis and is estimated to cost taxpayers trillions of dollars. (To learn more, check out our Investopedia Special Feature: Subprime Mortgages.)




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