Federal Home Loan
Mortgage Corporation (FHLMC)

The Federal Home Loan Mortgage Corporation or “Freddie Mac”, is the second largest issuer of pass-through securities. Freddie Mac shares, a government sponsored agency are negotiated on the New York Stock Exchange (NYSE) under the ticker symbol FRE.

Participation certificates that Freddie Mac offers are in many aspects similar to the GNMA securities.

• The greatest differences are the following:
• Participation certificate pools contain conventional mortgages (most are single family loans with 30-year terms) that are subscribed and purchased by Freddie Mac. These pools tend to be larger than GNMA pools.
• Freddie Mac guarantees the established interest payments on time , and lately also, they prepayment of principal (within a year). Since Freddie Mac is an agency, its guarantees are weaker than those from GNMA securities that have the Federal Government’s full faith and credit provision. Some participation certificates guarantee only interest payment on time.
• Participation certificates are not as negotiable as those of GNMA securities due to the less amount of certificates that are negotiated in the secondary markets. To improve negotiability of participation certificates, Freddie Mac re-buys them directly from holders.
• Yields in participation certificates are slightly higher than yields in the GNMA securities because of the few discrepancies in security and in a lower grade of negotiability.
• This statement does not determine that certificates of negotiation are not safe or negotiable. Compared to GNMA securities, the level of risk of credit is slight (far less than a corporate issue), and have more liquidity and are more negotiable, but since GNMA securities have a wider presence in markets they are not so liquid or negotiable.

The federal Home Loan Mortgage Corporation has besides participation certificates , a mortgage pass-through security denominated as Guaranteed Mortgage Certificate (GMC).

GMC was designed for institutional investors with minimum amounts of $100,000 (as opposed to $25000 for GNMA securities and participation certificates), and pay interests and principal every six-month period. Freddie Mac guarantees payment of interests and the total amount of principal.