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.

Recommended

Price to sales ratio
Glossary

Price to sales ratio

A company's market cap divided by the company's annual sales (or revenue) gives us the price/sales ratio.
28 Aug 2020
Too embarrassed to ask: what is a p/e ratio?
Too embarrassed to ask

Too embarrassed to ask: what is a p/e ratio?

Find out how to use the price/earnings ratio (p/e ratio for short) – a useful starting place for investors looking to value a company.
26 Aug 2020
Stock split
Glossary

Stock split

A stock split increases the number of a corporation's issued shares by dividing each existing share.
21 Aug 2020
Economic indicators
Glossary

Economic indicators

An economic indicator is any statistic that allows us to analyse how the economy is performing or is likely to perform in future.
31 Jul 2020

Most Popular

Here’s why you really should own at least some bitcoin
Bitcoin

Here’s why you really should own at least some bitcoin

While bitcoin is having a quiet year – at least in relative terms – its potential to become the default cash system for the internet is undiminished, …
16 Sep 2020
Will a second wave of Covid lead to another stockmarket crash?
Stockmarkets

Will a second wave of Covid lead to another stockmarket crash?

Can we expect to see another lockdown like in March, and what will that mean for your money? John Stepek explains.
18 Sep 2020
James Ferguson: How bad data is driving fear of a second wave of Covid-19
UK Economy

James Ferguson: How bad data is driving fear of a second wave of Covid-19

Merryn and John talk to MoneyWeek regular James Ferguson about the rise in infections in coronavirus and what the data is really telling us.
17 Sep 2020