101 Brief
This brief answers three important questions: What is FM Policy Focus's background? How does the mortgage market work? How are Fannie Mae and Freddie Mac different from other institutions that purchase mortgages?
Vital Role of FM Policy Focus
FM Policy Focus is an alliance of financial sector and housing related trade associations working with consumer, taxpayer, and affordable housing groups and financial institutions to ensure that Fannie Mae and Freddie Mac put the interests of homebuyers and taxpayers above the interests of their investors.
Mortgage Finance System
Fannie Mae and Freddie Mac are government-sponsored enterprises (GSEs) -- shareholder-owned, for-profit corporations chartered by Congress and given substantial government subsidies in return for serving a specific public purpose. In the case of Fannie Mae and Freddie Mac, that public purpose is promoting a stable secondary mortgage market to ensure that banks and other lending institutions have a constant supply of money to lend to homebuyers. More money means more opportunities for Americans to buy homes.
Federal Reserve Study
A recent Fed study, The GSE Implicit Subsidy and Value of Government Ambiguity, examines the relationship between Fannie Mae, Freddie Mac and the federal government and assesses the success of that relationship in increasing the availability of affordable housing finance, and in increasing homeownership. Much of the value of that relationship ends up in the hands of stockholders, not homebuyers, according to the study, which was written by Wayne Passmore, Assistant Director of the Research and Statistics Division of the Fed.
Briefing Paper
In the wake of startling revelations relating to Freddie Mac, Congress is now considering legislation to strengthen the regulation and oversight of Freddie and its sister institution, Fannie Mae. The stakes are significant. Given that these two Government Sponsored Enterprises (GSEs) together carry about $1.5 trillion in debt today, the failure of either could potentially make the savings and loan crisis of a decade ago look minor.
