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.

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.

MoneyWeek magazine

Latest issue:

Magazine cover
Faster and faster...

The frenzied pace of the high-tech revolution

The UK's best-selling financial magazine. Take a FREE trial today.
Claim 4 FREE Issues

Which investment platform?

When it comes to buying shares and funds, there are several investment platforms and brokers to choose from. They all offer various fee structures to suit individual investing habits.
Find out which one is best for you.