Fannie Mae's and Freddie Mac's Financial Status: Frequently Asked Questions

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Fannie Mae’s and Freddie Mac’s Financial Status: Frequently Asked Questions

Fannie Mae’s and Freddie Mac’s Financial Status: Frequently Asked Questions

Fannie Mae’s and Freddie Mac’s
Financial Status: Frequently Asked Questions

N. Eric Weiss
Specialist in Financial Economics
September 27, 2012

Introduction

Fannie Mae and Freddie Mac are stockholder-owned, government-sponsored enterprises (GSEs),
which purchase existing mortgages, guarantee investors that the mortgages will be paid on time,
pool the mortgages into mortgage-backed securities (MBSs), and either keep the MBSs as an
investment or sell the MBSs to investors. Congressional charters give the GSEs a special
relationship with the federal government, and it is widely believed that the federal government
implicitly guarantees their $1.2 trillion in bonds and $3.7 trillion in MBSs. The charters give
these GSEs special public policy goals aimed at providing liquidity in the mortgage market and
promoting homeownership for underserved groups and locations.

In 2008, the GSEs financial condition had weakened and there were concerns over their ability to
meet obligations. On September 7, 2008, the federal government took control of these GSEs from
their stockholders and management in a process known as conservatorship. The goal of
conservatorship is to restore the GSEs’ financial strength and to return control to their
stockholders and management.

Congressional interest in Fannie Mae and Freddie Mac has increased in recent years, primarily
because the federal government’s continuing conservatorship of these GSEs has raised doubts
about their future and concerns about the potential cost of supporting them. Congressional interest
has been reflected by the introduction of bills to reform or replace the GSEs and by oversight
hearings.

This report presents, in analytical question and answer form, the major issues surrounding Fannie
Mae’s and Freddie Mac’s financial conditions, and various public policy options under
discussion.

A glossary of terms is included at the end of this report.

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