Freddie Mac

The Federal Home Loan Mortgage Corporation, or Freddie Mac is a government sponsored financial intermediary to help increase the flow of funds into the mortgage market. Freddie Mac, like Fannie Mae is a publicly owned corporation whose shares are traded on the New York Exchange. The 12 Federal Home Loan Banks are cooperatives, which operate somewhat independently of one another, and are owned by member financial institutions. These institutions are primarily privately owned savings and loans, savings bank, commercial banks, and other lenders that finance home mortgages.

Freddie Mac raises funds in the capital markets and makes the money available to retail lenders, who in turn provide financing for their customers. Fannie Mae and Freddie Mac are largely restricted to financing conforming mortgages, which are high quality loans secured by residential real estate.

To put the process in motion, homebuyers apply for mortgages from primary market mortgage lenders such as banks, savings and loan associations, savings banks, mortgage companies, credit unions and online lenders. The primary market mortgage lender evaluates the home buyer's ability  to repay the mortgage and closes on the home purchase. Once the closing documents are signed the funds are transferred from the primary lender to the property seller.

After closing, the primary lender may either hold the mortgage in its own portfolio or sell it in the secondary market, generally Freddie Mac. They then use the proceeds of this sale to make new loans to other home buyers.

Freddie Mac is one of the largest investors in mortgages. As a major player in the secondary mortgage market, they:

•   Buy mortgages that meet their underwriting and product guidelines
•   Package those loans into securities
•   Sell the securities to investors on Wall Street

Once these mortgages have been sold in the secondary market, the funds received are then made available to primary lenders to make more loans.

Mortgage Servicing

When you apply for a home mortgage, you may think that the lender will hold and service your loan until you pay it off or you sell your house. That's often not the case. In today's market, loans and the rights to service them are often bought and sold.

A mortgage servicer is responsible for collecting your monthly loan payments and crediting your account. A servicer also handles your escrow account, if you have one. The escrow portion of your payment is generally taxes and insurance. If you do not have an escrow account you must pay those items separately. However, it is unlikely you will be issued a mortgage without including an escrow account.

The Real Estate Settlement Procedures Act (RESPA), enforced by HUD, is the major law covering escrow accounts. If your mortgage servicer administers an escrow account for you, the servicer is generally required to make escrow payments for taxes, insurance, and other charges in a timely manner. Under RESPA, the mortgage servicer also is required to give you a free annual statement that details the activity of your escrow account. This statement shows your account balance and reflects payments for your property taxes, homeowners insurance, and other charges.