FRE Stock

FRE Stock or Federal Home Loan Mortgage Corporation which is commonly referred to as Freddie Mac.  This corporation is a government sponsored enterprise that was originally created in 1970 to help aid in the mortgage market in hopes that it would boost the mortgage market.  What the government wanted was for Freddie mac and Fannie Mae to compete with one another so that they could help in boosting the mortgage market.  Essentially how FRE stock works is that they come in and buy mortgages in the secondary mortgage market.  They buy a substantial amount of this stock at a time and then they turn around and sell them.  They sell these stock as a MBS or mortgage backed security, which basically means that these represent a claim on the cash flows of these shares.  This would help to increase money supplies available for mortgage lending and therefore new home purchases.

This with the help of Fannie Mae would lead to the home mortgage crisis of 2007.  These two entities basically help to aid and and ensure the breakdown of our home mortgage market.  In 2008 Freddie Mac and Fannie Mae were both put under conservatorship by the Federal Housing Finance Agency.  This would become literally one of the biggest takeovers by the government over another entity in decades.  

What the problem was is that Freddie Mac was making it appear as though the housing market was doing better then it really was.  It was painting a picture that the financial mortgage market looked great, but in actuality the housing market was falling apart quickly.  The home loans that were being given out were being given to individuals who did not have the financial means to cover the mortgage loans, and therefore home defaults and foreclosures began to happen.  These began to happen at such a fast pace and the market became highly unstable.  When foreclosures began to take over the housing market began to depreciate, and the crisis began.  

Some people argue that Freddie mac was a good idea.  The competitiveness between both Freddie mac and Frannie Mae where done in the spirit of capitalism.  But what happened was that these home loans given out, were done in negligence.  It is a good idea in theory to help individuals who may have a lower income, buy a home.  The problem is that if you do not have enough money, to therefore keep up the payments for the loan on your home, and then therefore take out a second mortgage, and again do not have the funds to keep up the payments, you home will go into default hence leading to foreclosure.  

Freddie Mac's stock drop over ninety-percent in 2008.  That is one of the biggest plummets seen in decades.  At this point in time, the government decided to step in and take over conservatorship.  People argue that the government should have not stepped in, that this added a substantial amount of debt to our nations deficit.  The problem with this argument is, is that if they would have left Freddie Mac alone, it could have taken down the whole housing market, with disastrous effects.  Unfortunately the damage had already been done and on a government perspective, they had to insure that it would not end up doing more damage then it already had.  When situations like this arise you have to ask yourself what would have been worse?  Freddie Mac could have had even more disastrous effects, and we already can see as a nation how  the housing market has already been effected.  We are just now, slowly beginning to see the light.  Who knows what it could have looked like had the government not stepped in.