The History of Freddie Mac Foreclosures
ted States biggest mortgage companies. Freddie Mac is actually means Federal Home Loan Mortgage Corporation and along with Fannie Mae it holds 5 trillion dollars of debt.When Fannie Mae was transferred from the Government to private investors in 1968, there were concerns about it being run as a monopoly. To solve this problem Freddie Mac was established in 1970.
The main reason for Freddie Mac foreclosures being set up was to create a conventional home mortgage, stop the problem that they had at the time whereby different areas had different interest rates, and also address the lack of availability of different types of mortgages.Freddie Mac had to raise a great deal of money before they could go into business and to do this, they sold $100 million worth of stock. This was bought by 12 Federal Home Loan Banks.In 1971, Freddie Mac was ready to trade in earnest, and this was at a time when mortgage rates were starting to fall. This year, the said corporation sold its first mortgage-related security.
Freddie Mac is well-regulated, and the Government often intervenes in how they operate. An example of this was in 1977 when Jimmy Carter brought about the Community Reinvestment Act. This meant that Freddie Mac now had to make sure to allow loans to be made to people who would have been classed too poor to qualify in the past.Since 1989, Freddie Mac has been regulated by the Department of Housing and Urban DevelopmentIn 1999, Bill Clinton, gave the corporation strict numerical quotas for forcing sub-prime loans further allowing poorer people to get loan, but also increasing the risk of default.In 2001, it was found that the size of the two companies was a problem.In 2004, the company was hit by an accounting scandal whereby there was found to be $4.5 billion of accounting errors, leading to the removal of three executives. They were forced to raise their level of core capital by 30%, limiting their ability to buy mortgages.As more people were defaulting, they had their capital requirements reduced as they were allowed to add $200 billion into the market, and the number of Freddie Mac foreclosures was rising.By July 2008, it was realized that it was the worst year since Freddie Mac’s inception, and they are expecting to have to be bailed out by the Government.
