They buy mortgages that meet certain standards from banks and other mortgage originators pool those loans into mortgage-backed securities, which they guarantee against most of the losses from defaults on the underlying mortgages and sell the MBSs to investors-a process known as securitization. That guarantee explicitly exposes the government to risk from the activities of the GSEs.įannie Mae and Freddie Mac operate mainly in the secondary (or resale) market for single-family mortgages. Today, under those conservatorships, the debt securities and mortgage-backed securities (MBSs) that Fannie Mae and Freddie Mac issue are effectively guaranteed by the federal government (subject to limits). ![]() ![]() However, in September 2008, the government placed the GSEs in conservatorships under their regulator, the Federal Housing Finance Agency (FHFA), because of financial distress stemming from the recession that began in 2007. They were originally established by the federal government as private corporations with a public mission. ![]() Fannie Mae and Freddie Mac are government-sponsored enterprises (GSEs) that help finance mortgages in the United States.
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