The Federal Home Loan Mortgage Corporation (NYSE: FRE) is going to buy $10 billion to $15 billion in jumbo mortgages from big lenders in order to lead housing market out of slump.
The potential lenders are Wells Fargo Co., J.P. Morgan Chase & Co., Citigroup and Washington Mutual Inc.
Freddie Mac is a stockholder-owned corporation authorized to make loans and loan guarantees. It buys mortgages on the secondary market, pools them, and sells them as mortgage-backed securities to investors on the open market. This secondary mortgage market helps to replenish the supply of lendable money for mortgages and ensures that money continues to be available for new home purchases.
Freddie Mac was earlier restricted from buying jumbo loans – mortgages above $417,000 nationally. Congress changed the rules and allowed government-sponsored enterprises to buy mortgages worth up to $729,750 in 224 high-cost markets – areas where the home price was above that level.
Freddie Mac’s move will now allow home buyers in these areas to get cheaper rates in the current credit crisis. The government-sponsored enterprise will finance up to 90% of a property's value.