Fannie Mac (FM) and Freddie Mac (FrM) is a well-known topic on the financial world. They were publicly held financial institutions created by a congress to play a role in the nations financial housing system. Their goal is to enhance the market with liquidity, stability and affordability in the US mortgages market. They gave banks a secondary option to provide liquidity to companies such as loan and mortgage companies that make loans toward financial housing. Fannie Mae was the first of the two introduced, starting in 1930. Fannie Mae buys mortgages on the secondary market, pools them, and sells them as a mortgage backed securities to investors on the open market. During the process of securitisation, they enterprises guarantee payment of principal and interest of their MBS, in exchange for a fee. This is also useful as it reduces the risk of the investors. It is a well known fact that the global financial crisis (GFC) occurred in 2008, and this had a detrimental effect on the housing market, therefore effecting FM. The GFC was partly caused by the “housing bubble” from 2001-2007 burst leaving the global property market in tatters and leaving borrowers unable to pay their mortgages. Fannie Mac was seen to be one of the key players in the economic crisis. In 2008, Fannie Mae was forced into administration to compete with the private …show more content…
Both FM and FrM continue to have positive effects on the market. They both allow for funding to banks as well as other mortgage lenders,. Without them, lending to home buyers would have fully ceased, meaning that home sales would have fallen more sharply, thus leading to less value. Therefore they needed to be rescued and placed into a state where they would have the ability to continue to run but not have such detrimental effects on the