The Federal Home Loan Mortgage Corporation (FHLMC), better known as Freddie Mac, is a governmentsponsored enterprise that purchases MORTGAGEs from lending institutions and packages them into securities sold to investors (SECURITIZATION). Freddie Mac and Fannie Mae (FEDERAL NATIONAL MORTGAGE ASSOCIATION), the two major competitors in the mortgage securitization market, grew out of government desire to support mortgage lending and help stimulate economic activity. Freddie Mac was established in 1970 to buy conventional (not federally insured) mortgage LOANS. In 1989 it became a private stockholder-owned CORPORATION, but with a mixture of oversight. Freddie Mac’s BOARD OF DIRECTORS includes 13 members elected by stockholders and five members appointed by the president of the United States. Freddie Mac is the 27th largest corporation in the country, with over $500 billion in ASSETS. In addition to purchasing mortgages for its own portfolio, Freddie Mac creates pass-through securities (called participation certificates) and guaranteed mortgage certificates. The participation certificates are similar to GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (Ginnie Mae) pass-through certificates, except that they contain conventional mortgages. The mortgage pools are assembled directly by Fannie Mae (not mortgage lenders). The mortgages are usually much larger than government-insured mortgages, and participation certificates are sold in minimum amounts of $100,000. Freddie Mac’s government mortgage certificates (GMCs) are also pass-through securities, guaranteed by the FHLMC. As such, GMCs are similar to conventional BONDS where the borrower guarantees payment of principal and interest over the life of the security. Like Fannie Mae, Freddie Mac is subject to market and government scrutiny. In 1992 Congress passed the Federal Housing Enterprises Financial Safety Act to provide regulatory oversight over Freddie Mac and Fannie Mae. The act did not go into effect until 1995, and the initial report was published in 2002. Critics of Freddie and Fannie, most notably the lobbying group FM Watch, argue that GOVERNMENT-SPONSORED ENTERPRISES compete unfairly in the secondary mortgage market due to their implied government sponsorship. This allows Freddie Mac and Fannie Mae to borrow at lower rates in the market. Critics also contend the FHLMC has undermined the private lending industry through creation of Loan Prospector, an automated underwriting system created by Freddie Mac. In recent years Freddie Mac has expanded into subprime (higher RISK) mortgage lending and the financial derivatives market. Critics contend lack of oversight of these activities creates potential government risk through implied guarantees as a government- sponsored enterprise.