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.

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