Freddie Mac has long struggled to compete with larger rival Fannie Mae because the former's mortgage-backed securities trade at a discount to the latter's. Their new regulator may change that.

As government sponsored enterprises operating in federal conservatorship, Fannie and Freddie are, in theory, equally creditworthy. Yet for a number of esoteric reasons, investors treat Freddie's MBS, which Freddie calls "participation certificates" or PCs, as if they are lower-grade bonds than those guaranteed by Fannie. This has forced the smaller GSE to prop up the liquidity and pricing of its PCs to maintain market share.

Limited Time Offer

Save $400 off your subscription. Special offer ends April 30, 2017.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.