The Federal Home Loan Mortgage Corporation, known as Freddie Mac, is a government-sponsored enterprise that buys loans from mortgage lenders, packages them together, and sells them as a mortgage-backed security to investors on the open market. This increases the supply of money available for mortgage lending and increases the money available for new home purchases.
A similar entity known as Fannie Mae has a nearly identical structure and function. Because lenders can depend on Fannie Mae and Freddie Mac to buy conforming mortgage loans on the secondary mortgage market, lenders will loan money at lower interest rates than what a buyer would otherwise pay. The loans that Fannie and Freddie are willing to support are called conforming loans because the loans conform to Fannie and Freddie’s rules. The primary rule is a limit on the loan’s amount. Loans that are too big to conform to Fannie and Freddie limits are known as jumbo loans.