The entities referenced are government-sponsored enterprises (GSEs) critical to the U.S. housing market. They purchase mortgages from lenders, package them into mortgage-backed securities (MBS), and guarantee these securities, thereby providing liquidity to the mortgage market. These actions enable lenders to offer lower interest rates and facilitate homeownership. For example, a bank originating a mortgage might sell it to one of these GSEs, freeing up capital for further lending.
Their significance stems from their impact on mortgage availability and affordability. By guaranteeing MBS, they reduce the risk for investors, making mortgage investments more attractive. This, in turn, allows lenders to extend credit to a broader range of borrowers. Historically, their role has been crucial in promoting homeownership, particularly for low- and moderate-income families. However, their structure and practices have also been subject to scrutiny and reform efforts following the 2008 financial crisis.
