Freddie Mac Mortgage Portfolio Balloons

After devastating setbacks during 2008, when its stock plunged and its mortgage portfolio became increasingly toxic, Freddie Mac is bouncing back. After nearly collapsing and being taken over by the government, the agency has reported a record surge in its mortgage business.

The Federal Home Loan Mortgage Corporation-commonly known by its nickname "Freddie Mac"-is a Government Sponsored Enterprise (GSE), with special designated authority from Congress to provide a secondary market for residential mortgages. In that unique role, Freddie Mac, like other mortgage related GSE entities such as Fannie Mae, underwrites a vast mortgage portfolio made up of real estate loans from all across the U.S. Fannie and Freddie handle the majority of residential mortgages made in this country.  This is meant to offer extra security and confidence to investors so that they'll purchase the loans from banks and other mortgage lenders. When investors are eager to buy GSE-backed loans, it ensures a smoother mortgage market, and translates into more affordable home loans for the average American.

Taxpayers to the rescue

During 2008, both Fannie Mae and Freddie Mac fell on hard times. Instead of rescuing the housing market, the twin GSE agencies needed to be saved by taxpayers. The government stepped in to buy up many of the loans in the Freddie Mac mortgage portfolio. Freddie received almost $14 billion of taxpayer money after a record third-quarter loss, and a government-appointed regulator put 10 new directors in charge of the agency, including seven new executives. Nervous investors seem to be appeased, because now Freddie Mac is doing a brisk business.

Freddie Mac gets healthy

Back in November 2008, only two months after Freddie Mac was placed under government control, its mortgage portfolio grew by more than 65 percent within a single month. That marked the second straight month of serious growth, countering the bad news of the previous two months, when Freddie's mortgage portfolio plummeted in value. Now, its assets are worth more than $800 billion, and its year-to-year gains set a new company record.

In a further attempt to bring down loan interest rates more and help borrowers, the Fed says it plans to buy as much as $100 billion of the corporate debt now encumbering Fannie Mae and Freddie Mac. The FHA is also shouldering more responsibility by guaranteeing a greater number of loans and offering more affordable terms to homeowners.

"Un"silver lining

The news isn't all comforting, however, because the delinquency rate on single-family loans guaranteed by Freddie Mac didn't fall in November, but instead, rose to more than 1 1/2 percent. The previous year, that rate was almost a full point lower, but the housing markets continue to suffer as the real estate economy weathers more foreclosures and price declines.  As people lose jobs and income, and their mortgage balances far outstrip the value of their homes, many experts expect to see more defaults and foreclosures.