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Freddie Mac- Trying To Continue To Create Housing

Freddie Mac, Federal Home Loan Mortgage Corporation, was chartered by the U.S. Government in 1970. The corporation buys home mortgages from banks and sells them repackaged as securities, which are sold to investors. According to Freddie Mac’s mortgage survey, mortgage rates on a 30-year fixed mortgage fell back to about 6.5%. The stated mission of Freddie Mac is to stabilize the mortgage market and make homeownership possible and opportunities for rentals. Freddie Mac also runs a website and various other campaigns and warnings about the dangers of predatory lending for refinancing and for home equity loans.

However, Freddie Mac has had its own regulatory and auditing problems.

The company announced that it will not go higher than a growth rate of two percent, of its mortgage portfolio. This limit was requested by the Office of Federal Housing Enterprise Oversight (OFHEO). This will continue until Freddie Mac is again issuing quarterly financial statements. According to Freddie Mac’s letter to OFHEO, they will continue to improve their financial reporting, and deal with weaknesses. CEO, Eugene M. McQuade stated that their company had a very good quarter in terms of their business recently and they are making progress in enhancing auditing and financial controls.

In the last ten years the assets of Freddie Mac and Fannie Mae, its sister GSE (Government Sponsored Enterprise) and rival have increased by a factor of almost five times greater than before. Federal Reserve Chairman Alan Greenspan warned in 2005 about the increase risk involved in these two huge GSEs. According to the OFHEO investigation, Freddie Mac understated earnings by $5 billion (which was not considered good news), while Fannie Mae was forced to recognize losses of over $11 billion over the last five years. The former director of OFHEO complained that he didn’t have sufficient staff to monitor these companies properly and also didn’t have sufficient regulatory powers.

An accounting scandal resulted in the ousting of two leading officers of Freddie Mac in 2003. The resulting problems were so systematic that Freddie Mac could not issue another quarterly report until 2005, and again missed some reports for 2006. The company has been planning to voluntarily register with the Security Exchange Commission (SEC) by the end of 2006.

Freddie Mac is also planning to overhaul its automatic underwriting system

The system is used to evaluate home loans sold to Freddie Mac from banks. The system currently has to be reprogrammed every few months to update it for new regulations and prices and interest rates.