Government-sponsored enterprises (GSEs)
The term 'government-sponsored enterprises' (GSEs) refers to three US organisations – Freddie Mac, Fannie Mae and Ginnie Mae – which all play a crucial role in the US mortgage market.
The term 'government-sponsored enterprises' (GSEs) refers to three US organisations Freddie Mac, Fannie Mae and Ginnie Mae which all play a crucial role in the US mortgage market.
Rather than lend direct to homeowners, a GSE usually buys or guarantees existing mortgages issued by US retail banks. This frees up capital for the issuing bank, enabling it to create more mortgages at lower interest rates than would otherwise be possible. This is because a GSE can raise capital cheaply, thanks to the implied backing it gets from the US government.
Unfortunately, from 2005 GSEs began buying or underwriting higher-risk mortgages issued to less credit-worthy borrowers, which has triggered substantial losses on the back of widespread defaults.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
-
Should you invest in UK equities?
The FTSE 100 hit a record high this week, but UK equities remain unloved and undervalued compared to their global and US peers. Should you snap them up at a discount?
By Katie Williams Published
-
State pension errors: DWP urged to check for mistakes among divorced people
Former pensions minister Steve Webb says there are a high number of divorced women on low state pensions. Now MPs want the DWP to check if there were any errors in “potentially underpaying men and women who are divorced”.
By Ruth Emery Published