Federal Home Loan Mortgage Corporation

Federal Home Loan Mortgage Corporation
Name	Federal Home Loan Mortgage Corporation
Trade name	FHLMC
Type	Government-sponsored enterprise
Industry	Financial services
Founded	1970
Headquarters	Washington, D.C.
Area served	United States
Products	Mortgage-backed securities, secondary mortgage market services

Federal Home Loan Mortgage Corporation is a United States government-sponsored enterprise created to support the secondary mortgage market by purchasing mortgages and issuing mortgage-backed securities. It operates alongside institutions and programs associated with Federal National Mortgage Association, Federal Reserve System, United States Department of the Treasury, and various state housing finance agencies. The corporation interfaces with private financial institutions including JPMorgan Chase, Wells Fargo, Bank of America, and investment banks such as Goldman Sachs.

History

The corporation was established in 1970 amid policy debates involving Lyndon B. Johnson administration housing initiatives, congressional legislation like the Emergency Home Finance Act of 1970 and the legacy of the Federal Home Loan Bank System. Early directors and policymakers drew on experience from entities including Home Owners' Loan Corporation and Federal National Mortgage Association to design a model for mortgage liquidity. During the Savings and loan crisis of the 1980s and the Great Recession beginning 2007, the institution interacted closely with interventions by the United States Department of the Treasury and the Federal Reserve Board; significant market stress led to congressional hearings in the United States Senate and reforms shaped by lawmakers such as members of the House Financial Services Committee. Subsequent reforms and conservatorship actions echoed precedents set in actions involving Federal Deposit Insurance Corporation responses to prior crises.

Operations and Business Model

The corporation buys conventional conforming mortgages from originators including Fannie Mae (FNMA), regional banks, and mortgage lenders such as Quicken Loans and MetLife Home Loans to create mortgage-backed securities. Its guarantee and securitization functions interface with market participants like BlackRock, PIMCO, and institutional investors including State Street Corporation and Vanguard Group. The corporation issues debt in capital markets that trades alongside securities from United States Treasury issues and municipal bonds purchased by asset managers and pension funds like CalPERS and TIAA. Its operational infrastructure references technology standards used by firms such as Fiserv and CoreLogic and settlement practices coordinated with The Depository Trust & Clearing Corporation.

Government and Regulatory Relationship

As a government-sponsored enterprise, the corporation's charter and oversight involve statutory frameworks enacted by the United States Congress and supervision coordinated with agencies including the Federal Housing Finance Agency, the Securities and Exchange Commission, and the Office of Management and Budget. Its relationship with the United States Department of the Treasury has included backstop arrangements and memoranda during periods of market stress similar to mechanisms used with Federal Home Loan Banks. Congressional oversight has occurred in hearings before committees such as the Senate Banking Committee and has involved testimony by executives and regulators formerly affiliated with Goldman Sachs, Morgan Stanley, and national trade groups like the Mortgage Bankers Association.

Role in Housing Finance and Secondary Mortgage Market

The corporation plays a central role in transforming retail mortgages originated by lenders such as PNC Financial Services, SunTrust, and Citigroup into marketable securities held by investors including sovereign wealth funds and insurance companies like AIG and MetLife. Its activities support liquidity similar to the mandate of Federal National Mortgage Association and intersect with programs administered by agencies like the Department of Housing and Urban Development that affect eligibility, borrower access, and standards. Secondary-market guarantees issued by the corporation influence pricing alongside instruments such as interest rate swaps transacted in markets where firms like CME Group and Intercontinental Exchange operate, and they affect mortgage underwriting standards set by trade groups such as the Consumer Financial Protection Bureau stakeholders.

Financial Performance and Risk Management

Financial results and balance-sheet management reflect exposure to interest-rate risk, prepayment risk, and credit risk on pools of mortgages underwritten by counterparties including Countrywide Financial (in historical contexts) and current depositories like Capital One. The corporation employs hedging strategies that involve counterparties in the over-the-counter derivatives market, including major dealers such as Barclays and Deutsche Bank. Its capital structure and retained portfolio are monitored under regulatory capital frameworks influenced by standards emerging from deliberations with the Basel Committee on Banking Supervision and shaped by stress testing practices similar to those administered by the Federal Reserve for large bank holding companies.

Criticisms, Controversies, and Reforms

Criticism has focused on perceived implicit government backing and moral hazard debated by economists and policymakers including commentators tied to Brookings Institution, American Enterprise Institute, and academics from Harvard University and Stanford University. Controversies over crisis-era conservatorship, executive compensation, and securitization practices prompted legislative proposals in the United States Congress and analyses by watchdogs such as the Government Accountability Office and nonprofit groups including the Urban Institute. Reform proposals have ranged from recapitalization and wind-down scenarios to systemic restructuring championed in reports from think tanks like Cato Institute and commissions convened after the 2008 financial crisis.

Category:Government-sponsored enterprises of the United States