Fannie and Freddie

Until recently it was possible to regard the US system of housing finance as one of the best – if not the best – in the world. Just as it was intended to, it has supported very high levels of home ownership, notably among the less prosperous. But the semi-public entities chiefly responsible for that success, and the financial technologies they devised and promoted, are deeply implicated in the housing market crash that now threatens the US and world economies. Will that turmoil lead to a scaling back of their role? Most likely no. They are cast as part of the solution. Their already dominant role in housing finance is set to grow still further.



Fannie Mae was established by Congress in 1938. At the end of the 1960s it was restructured and, in 1970, joined by Freddie Mac. Their role is to provide “liquidity and stability in the secondary mortgage market”, with an emphasis on supporting housing loans to the less well-off. They buy mortgages from originating lenders and either hold these directly on their books or else securitise them and sell them on with a guarantee to other investors. Freddie Mac devised the first conventional mortgage-backed security.



Few Americans have any idea what Fannie and Freddie actually do – but they certainly do a lot of it. According to their supervising agency, the Office of Federal Housing Enterprise Oversight (Ofheo), at the end of the third quarter they had $3,200bn of mortgage-backed securities outstanding and held another $1,400bn of mortgages and securities on their own books. Together, the two institutions accounted for fully 40 per cent of US mortgage debt outstanding.



You can read the rest of my new FT column here.

Presented by

The Blacksmith: A Short Film About Art Forged From Metal

"I'm exploiting the maximum of what you can ask a piece of metal to do."

Join the Discussion

After you comment, click Post. If you’re not already logged in you will be asked to log in or register.

blog comments powered by Disqus

Video

Riding Unicycles in a Cave

"If you fall down and break your leg, there's no way out."

Video

Carrot: A Pitch-Perfect Satire of Tech

"It's not just a vegetable. It's what a vegetable should be."

Video

An Ingenious 360-Degree Time-Lapse

Watch the world become a cartoonishly small playground

Video

The Benefits of Living Alone on a Mountain

"You really have to love solitary time by yourself."

Video

The Rise of the Cat Tattoo

How a Brooklyn tattoo artist popularized the "cattoo"

More in Business

Just In