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Business & Marketing
Freddie Mac Company Analysis (Essay Sample)
Freddie Mac Company Analysis
Freddie Mac also known as Federal Home Loan Mortgage Corporation (FLMC) was created by the Congress in the year in 1970 in order to expand mortgage secondary markets in the country. It is government sponsored enterprise which buys mortgage in the secondary market by issuing guaranteed mortgage related securities. The mission of Freddie Mac is to create liquidity, stability and affordability in US housing market. Currently, the enterprise is working under conservatorship since 2008 and works under Federal Housing Finance Agency (FHFA) instructions. Freddie Macâ€™s primary stakeholders are home owners and investors in the housing sector and all tenants.
Freddie Mac is focused to create and meet liquidity needs in the residential mortgage market. This can be done through lowering cost for mortgage borrowers. By having Freddie Mac, the government is supporting stabilization of the economy through providing housing incentives, of low cost. Freddie Mac is currently running a program by the name "Making Home Affordable Programâ€, which is expected to make rental housing and homeownership more affordable by meeting the needs of the mortgage market. The program is also being driven towards helping families keep their loans by obtaining more sustainable mortgage and avoid foreclosures. By ensuring that mortgages are cheap and that home owners retain their loans, Freddie Mac is committed to reduce the number of foreclosures.
Freddie Mac has been able to increase the number of homeowners in America to most citizens. Through its mission of creating liquidity in the mortgage market, the cost of mortgage has gone down and most people in America can afford owning a home. The corporation also ensures that there is stability in the market and avoid situations where the cost of acquiring a home goes beyond a point where most people in the country. These situations will lead to default of the mortgage by the homeowners and foreclosures. Freddie Mac has achieved success in that most Americans own their homes or rent houses at very affordable price (Morris, 2012).
Five forces of competition analysis
The forces of competition for Freddie Mac are grouped into Porterâ€™s five forces of competition. The company has Fannie Mae and Boston Properties as the major competitors in the mortgage industry.
Bargaining power of suppliers
In the aspect of bargaining power of suppliers, there is low concentration of suppliers. Low concentration of suppliers indicates that those suppliers have limited bargaining power. Limited number of suppliers does not augur well with the mission of Freddie Macs who have a mission of protecting the mortgage industry and would need increased suppliers to lower costs of mortgage borrowing.
Bargaining power of the buyer
In the mortgage industry, which Freddie Mac operates, there is large number of customers who need the entity services, there is limited information available and consumer choice is limited. Freddie Mac has a challenge when customers have limited information on the mortgage market and works to ensure that mortgage information is available to everyone and freely. There is need for different types of mortgages which will increase consumer choices, currently, only floating rate mortgage and fixed rate mortgage are existing.
Rivalry of the existing firms
Though Freddie Mac has top rivals such Fannie Mae and Boston Properties Corporation, the firm is very competitive in trading in the secondary mortgage markets. The existing firms do not provide intense competition for the firm. With limited rivalry from the existing firms, there is uncertainty on whether the firm will offer the best services to its clients; the homeowners.
Threat of Substitutes
Freddie Mac being a public corporation, which was passed by the Congress and given mandate to lower the cost of borrowing in the mortgage industry, and thus create affordability in the housing sector, has limited number of substitutes. Having limited number of substitutes enables the corporation to work out the best strategies which will assist the mortgage industry to be better and limit cases of mortgage default.
Threat of new competitors
Freddie Mac is faced with threat of new competitors who will trade in mortgage secondary markets to bring who will bring a better change in the mortgage sector. If Freddie Mac does not give the best to mortgage and homeowners, there is threat that a new corporation will take over the mortgage secondary markets (Porter, 2010).
SWOT Analysis of Freddie Mac
Freddie Mac being a corporation which targets individuals and institutional who need investment mortgage has several strengths. Freddie Mac has the benefit of being the market leader in this business. When a firm is the market leader, consumers view it as providing the best services in the industry and opt to go for it. The corporation being government sponsored gives the customer the perception that it is a more secure enterprise than others. Freddie Mac has been recognized by the business community and has also been ranked by the Forbes. The firm has an advantage of having the best skilled labor, and they possess more than 6000 employees providing services.
The company does not have new strategies when it comes to mortgage secondary markets. Freddie Mac should be innovative enough to beat its competitors, who are taking most of their customers. Previous decline in net assets and income in their audited financial reports for 2012 chased away investors. The financial statements shook the confidence of the investors, and the corporation needs to do better with the coming years.
Freddie Mac can benefit if the home loan interest is lowered. Decline in interest market can bring confidence in the residential mortgage market and attract increased investors. As the government is working towards low cost and affordable homes, this opportunity will soon open up to the Freddie Mac. Government efforts to minimize the debt crisis, which were caused by global financial crisis, resulting from housing bubble will help Freddie Mac, through decline in default cases and increased mortgage lending.
When the government opts to change mortgage policies based on lending rules and procedures, investors might feel that the rules are too tough for them to adhere to, and reduce their buying and selling. This would be detrimental to Freddie Mac business. After housing bubble, which occurred in the past four years, there is increased risk in mortgage business. Furthermore, increased competition from existing and threat of new entrants poses a huge threat to Freddie Macs (Morris, 2012).
Freddie Mac should work towards maximizing its strengths and minimizing its weaknesses. Every firm has weaknesses, and its only through minimizing them that it attains competitive advantage. Freddie Mac should utilize its position of being the market leader in mortgage loans and increase customers and deliver high quality services. Furthermore, the enterprise being government sponsored should woo more clients, who have the perception that it is secure, and assure its clients that they a secure enterprise. They should create have promotional campaigns in that their investment is less risky than other private owned mortgage firms. The firm having a large pool of competent employees should work on providing the best quality of services. To ensure that these employees do not move to their competitors, the firm should come up with motivational programs aimed at enhancing service delivery. The firm should also retain employees through increased salaries and wages, extra benefits and also provide the best working environment. On the aspect of opportunities, the firm should encourage the government to reduce the rate of mortgage borrowing, and through this strategy, they will increase confidence in the residential mortgage market.
To maximize the shareholders value, there is also need to minimize weaknesses and threats. The firm should come up with the best business strategies and avoid risky investments which reduce its assets and the net income. The firm should also think of diversification, which means that these should act as back up incase unfavorable market conditions. Rise in the value of net assets and rise in net income will indicate growth and stability in an organization and this will grow confidence among the investors. In order to eliminate threat of existing and new entrants in the market, Freddie Mac should provide the best mortgage rates and streamline all its in that most of new entrants will find it hard for them to enter the market, and the competitors will find it hard to beat Freddie Mac (Kaplan & Norton, 2013).
Business Level and Corporate Level Strategies
Freddie Mac can also maximize its competitiveness and profitability through utilizing business level strategies and corporate level strategies. Business level strategies are the actions and procedures that firms take to provide value to customers and attain competitive advantage through their core competencies. Business level strategies in an organization are centered on customers and their goal is to create customer satisfaction, and attain competitive advantage at the same time. Freddie Mac can utilize business level strategies though providing mortgage loans at the lowest price in the market. This business strategy is known as cost leadership. Having the lowest rates while at the same time providing high quality services will make Freddie Mac attain competitiveness among its rivals, and also attract more customers leading to increased profits. Low mortgage rates are also hard to default for most customers and this will lead to minimal foreclosures on property of the clients who have defaulted. This is one of t...
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