How Taxpayers Subsidize Freddie Mac

Wall Street Journal - September 4, 2014 - September 4, 2014

Wall Street Journal, by Joe Light

Because of a relatively obscure quirk in the mortgage market, taxpayers in effect subsidize Freddie Mac FMCC -3.95% to the tune of $400 million to $600 million annually, according to an Urban Institute report released Wednesday.

Freddie Mac, along with competitor Fannie Mae FNMA -4.16%, plays a central role in the bond market by backing and issuing securities whose payments are drawn from homeowners paying off their mortgages.

Freddie and Fannie’s securities trade separately. However, their regulator, the Federal Housing Finance Agency, in August unveiled a plan to combine them and opened a 60-day comment period on the proposal. Unlike broader housing-finance reform, which so far hasn’t received enough congressional support to move forward, the proposed single security could happen without legislation, the FHFA says.

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