Fannie Mae • Freddie Mac • GSEs
From iGeek
Fannie/Freddie are GSE's (Government Sponsored Entities) that broker most loans (70-80%) in the U.S. (Banks only give you loans, because someone will buy them off them, and sell them back more diversified/lower risk holdings).
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- Remember how loans work: you get a loan (mortgage) from your bank, which is giving you that loan based on someone else's underwriting standards (who they sell the loan too).
- Banks don’t hold most of the loans they write, and they don’t write the standards they must follow — both of those are by who is buying (and reselling) those loans.
- The largest buyer/reseller of these loans (handing 70-80% of all private mortgages) is Fannie/Freddie(they set 80% of the standards for the nation)
- Fannie Mae and Freddy Mac are GSE’s (Government Sponsored Entities), which means a financial services corporation created/owned by the United States Congress
- Fannie/Freddy don’t hold most of those loans either once they buy them. They bundle a bunch of these loans together into an MBS (mortgage backed security), and sell that to investors all over the world (including back to the banks), which frees up that money to rinse and repeat.
- The whole point of Fannie/Freddy was as a Depression era New Deal program to create these MBS’s in order to lower the standards for getting loans, so more poor and middle class people into debt (and homes), in order to shift people from leveraging themselves (borrowing) to buy/invest in stocks, and to get them to do the same but for hard assets (homes).
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Tags: Terms Financial Terms
