Fannie Mae Fannie Freddie Mortgage Finance System

1766 WordsNov 24, 20148 Pages
Fannie and Freddie remain two of the largest financial institutions in the world, responsible for a combined $5 trillion in mortgage assets. The primary function of Fannie Mae and Freddie Mac is to provide liquidity to the nation’s mortgage finance system. Fannie and Freddie purchase home loans made by private firms (provided the loans meet strict size, credit, and underwriting standards), package those loans into mortgage-backed securities, and guarantee the timely payment of principal and interest on those securities to outside investors. Fannie and Freddie also hold some home loans and mortgage securities in their own investment portfolios. In 2008 Fannie and Freddie lost a combined $47 billion in their single-family mortgage businesses, forcing the companies to dig deep into their capital reserves. By late summer in 2008—about a year after the start of the housing crisis—Wall Street firms had all but abandoned the U.S. mortgage market, while pension funds and other major investors throughout the world continued to hold large amounts of Fannie and Freddie securities. After the housing market collapsed, Fannie and Freddie needed a $200 billion bailout. If Fannie and Freddie were allowed to fail, experts agreed that the housing market would collapse even further, paralyzing the entire financial system. The Bush administration in September 2008 responded by placing Fannie Mae and Freddie Mac into government conservatorship, where they remain today. The improved finances at

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