Businessmodel of Freddie Mac

Customer Segments

Freddie Mac provides services to a range of institutional and commercial clients operating primarily in the financial services and banking sector. The Company’s customers can be organised by service line:

• Single-Family Customers, which principally comprise lenders lenders that originate loans for new or existing homeowners, including mortgage banking companies, commercial banks, community banks, credit unions, other non-depository financial institutions, housing finance agencies, and thrift institutions;
• Multifamily Customers, which principally comprise apartment project operators, to which the Company provides post-construction financing; and
• Other Securities Customers, including various institutional customers, such as state and local governments, insurance companies, money managers, central banks, depository institutions, and pension funds. Freddie Mac includes a number of the largest loan originators in the US among its customers, doing significant business with Wells Fargo Bank, Bank of America, US Bank, Quicken Loans, JP Morgan Chase Bank, and Nationstar Mortgage. Freddie Mac exclusively serves customers in the US.

Value Propositions

Freddie Mac provides value to its customers in the following ways:

• Its industry standing and reputation, with the Company commanding a positive reputation in the US as one of the leading mortgage institutions, having a track record for providing effective and reliable services to a diverse customer base;
• Its government backing, with the Company operating as a government-sponsored entity, receiving an annual subsidy and being granted reduced local and registration taxes, which enable the Company to operate more efficiently;
• Its relationship with lenders, with the Company maintaining close working relationships with many of the largest lending institutions in the US, including high-profile banks such as Bank of America, Wells Fargo Bank, JP Morgan Chase Bank, and US Bank; and
• Its industry expertise and experience, with the Company employing highly-trained financial professionals across its three operating segment, including specialist mortgage and lending professionals, as well as a team of experienced industry executives. ### Channels

Freddie Mac operates a website at www.freddiemac.com, through which its provides information on its operations, service offerings, suppliers, and operating locations. The Company does not operate an online sales channel, nor does it provide an online customer portal through which clients can manage their business dealings.

Freddie Mac operates principally through dedicated service teams organised by operating segment, employing personnel dedicated to single-family and multifamily operations. These personnel work directly with lenders and other customers across US residential market, utilising a prior-approval underwriting approach for multifamily loans and a delegated underwriting approach for its Single-Family Guarantee segment, and completing its own underwriting and credit review processes. These personnel operate out of the Company’s network of offices across the US, including in major cities such as Washington DC, Atlanta, New York, Dallas, and Chicago.

Freddie Mac additionally utilises the services of various third-party operators to provide its services. This notably includes independent loan and mortgage servicers, as well as other financial intermediaries.

Customer Relationships

Despite its online presence, Freddie Mac does not provide services to its customers on a self-service basis, beyond basic tools and resources. The Company, instead, closely manages its relationships with lenders and loan originators, through its dedicated single-family and multifamily service personnel, who consult directly with high-profile institutions such as Wells Fargo Bank, JP Morgan Chase Bank, and Bank of America. The Company seeks to affect a positive outcome for itself, as well as for its lenders, ensuring recurring business and longstanding relationships.

The importance of Freddie Mac’s lender relationships is such that the Company provides personal care to its major customers through dedicated account management teams. The Company also provides ongoing support to customers through its dedicated support teams, which are able to provide tailored assistance to new and existing customers over the phone or online. Freddie Mac provides contact details for each of its regional offices on its website.

Freddie Mac additionally provides a range of online resources designed to address common customer queries. This includes FAQs, security data, legal documentation, and guides. The Company also operates a number of social media accounts – including with Twitter and Facebook – through which it is able interact directly with customers and consumers.

Key Activities

Freddie Mac is a government-sponsored enterprise engaged in the investment of mortgage loans and mortgage-related securities in the US. The Company aligns its operations into three reportable business segments: Single-family Guarantee, which reflects results from the Company’s single-family credit guarantee activities; Multifamily, which reflects results from its investment, securitization and guarantee activities in multifamily loans and securities;

Investments, which reflects results from managing its mortgage-related investments portfolio, its treasury function and interest rate risk. Freddie Mac purchases residential mortgages originated by mortgage lenders – including from leading lenders such as Wells Fargo Bank and Bank of America – packaging mortgage loans into mortgage-related securities, which are guaranteed by the Company and are sold in the global capital markets. The Company does not originate mortgage loans or lend money directly to consumers.

Key Partners

Freddie Mac works closely with a network of partner companies and organisations, with which the Company collaborates on various projects and services. These partners can be organised broadly into the following categories:

• Supplier and vendor Partners, including suppliers of services, equipment, and technologies that support the Company’s operations, as well companies to which certain non-technical functions can be outsourced;
• Technology Partners, including software and hardware companies that provide products and services in support of the Company IT infrastructure and systems, enabling the Company to operate efficiently and reliably;
• Financial and Lending Partners, including various loan originators and financial institutions, with which the Company collaborates on projects and provides joint service and solutions;
• Social and Community Partners, including various non-profits and charitable organisations, with which the Company collaborates on joint social and community projects across the US. Freddie Mac has a number of partnerships in place. This includes a partnership with to Quicken Loans to make home financing accessible for new buyers, a technology integration partnership with Ellie Mae, a tie-up with NAHREP to launch a joint loan program, and community partnerships with National Urban League and National Council of La Raza.

Key Resources

Freddie Mac’s key resources are its financial reserves, its access to capital markets, its lender relationships, its IT and communications infrastructure, its relationship with the US Government, its partnerships, and its personnel.

Freddie Mac does not own any patents or technologies that are key to its activities. The Company does, however, own and or lease a number of physical properties that are important to its operations. This notably includes its network of offices across the US, in particular its principal offices, which consist of four office buildings in McLean, Virginia spread across approximately 1.3 million square feet.

Cost Structure

Freddie Mac incurs costs in relation to the purchase of loans and assets, the procurement of professional services, the management of its lender relationships, the management of it partnerships and other relationships, the accrual of credit expenses, the implementation of marketing and promotional programs, the maintenance of its IT and communications infrastructure, and the retention of its personnel.

In 2015 Freddie Mac recorded total non-interest expenses in the amount of $4.74 billion. This included administrative expenses – including the payment of professional service fees –  in the amount of $1.93 billion.

Revenue Streams

Freddie Mac generates revenue through the collection of guaranty fees from its various lender customers. These fees comprise compensation for assuming and managing the credit risk on the Company’s single-family and multifamily guaranty books. The Company also collects fees received for engaging in structured transactions and providing other lender services, as well as revenue derived from certain investment activity.

In 2015 Freddie Mac recorded net interest income for the year in the amount of $14.95 billion, up marginally on the $14.26 billion recorded by the Company in 2014.