They were both labeled as government-sponsored enterprises, meaning that Congress created them in order to provide financial services. Being that they were sponsored by the government, they were able to engage in riskier practices than most mortgage companies because they would be bailed-out if they ever failed. For example, whereas large banks had to put aside enough capital to cover 8% of their portfolio’s, Fannie Mae and Freddie Mac only put aside a fraction of that. As a result, they were able to hold more debt than their competitors and became the dominant actor in the mortgage securitization market throughout the
They were both labeled as government-sponsored enterprises, meaning that Congress created them in order to provide financial services. Being that they were sponsored by the government, they were able to engage in riskier practices than most mortgage companies because they would be bailed-out if they ever failed. For example, whereas large banks had to put aside enough capital to cover 8% of their portfolio’s, Fannie Mae and Freddie Mac only put aside a fraction of that. As a result, they were able to hold more debt than their competitors and became the dominant actor in the mortgage securitization market throughout the