Freddie Mac hires McKinsey to advise on capital management

20 November 2019 2 min. read

Housing finance company Freddie Mac has hired management consultancy McKinsey & Company to advise on capital management, as the company looks to exit government control.

“After a competitive ... process, Freddie Mac retained McKinsey to conduct a gap assessment of our capital management capabilities and develop a roadmap to address any issues. This four-month engagement will begin in December,” a Freddie Mac spokesperson told Reuters.

The hiring of McKinsey is a sign the company is moving in earnest to transform its operations, raise additional capital, and exit government conservatorship.

Freddie Mac and its larger cousin Fannie Mae buy and repackage loans as mortgage-backed securities, increasing the amount of money available for mortgage lending and new home purchases. In 2008, the corporations owned or guaranteed approximately half of the US’s $12 trillion mortgage market. When the subprime mortgage crisis hit, Fannie Mae and Freddie Mac were placed under government conservatorship in order to prevent their collapse, with the two companies having taken on too much risk without sufficient cushion for potential losses.

Freddie Mac hires McKinsey to advise on capital management

Now, more than a decade after the bailout, the Trump administration is looking to cut the pair loose, with the Treasury Department offering recommendations this fall for returning them to private company status.

Their regulator, the Federal Housing Finance Agency (FHFA) has not allowed them to raise outside capital yet, but they were recently permitted to start rebuilding reserves up to $45 billion in earnings.

Mark Calabria, director of the FHFA, told Reuters that Fannie Mae and Freddie Mac would eventually also hire advisers to help raise billions to rebuild their reserves, stressing they need billions in additional capital to hedge risk against any downturn in the housing market. 

The FHFA has also urged the pair to shore up their operations to ensure they can function as standalone companies. To that end, Freddie Mac has been upgrading its digital operations under the guidance of chief information officer Frank Nazzaro. “The overarching goal of this work is to improve velocity, reduce cost, and increase quality throughout the mortgage process,” Nazzaro told the Wall Street Journal in October.

Freddie Mac has been implementing advanced analytics, machine learning, and other emerging technologies to improve processes and better manage risk, while also dabbling in the popular agile methodology.