Government Sponsored Enterprises – an Introduction

In the past ninety plus years, the U.S. Congress has moved to create a series of Government Sponsored Enterprises (GSEs)  focused on providing financial services to assist homeowners and farmers. Starting with farming economic issues proceeding the First World War, the dramatic impact of the great Depression during the 1930’s and the rapid expansion of suburban America, Congress has sought vehicles to help secure and expand homeownership and improve financing for rural farmers, once seen as the economic backbone of the nation. The goal of these institutions was to reduce interest rates for these specific borrowing groups and provide a measure of economic stability. With the decrease in the number of  family owned farms and  dramatic changes in turn of the century rural life, the mortgage borrowing services have become by far the largest portion of the GSEs operations.

The GSEs have created a secondary market for farm and housing loans through a securitization system, which allows primary market debt issues to be bought and traded by investors. Through the securitization system demand for the debt securities drives up their trading price, which in tern lowers their interest rates. The result is the secondary market in mortgage loans gives household borrowers lower fixed rate loans, removes credit risk from banks  and provides securitized securities for investors.

The structure of the GSEs are varied with some owned by the Federal government; some are publicly owned;  and some are owned by the corporations that use their services. Their lenders grant them extraordinary low rates, and the buyers of their securities grant them extraordinary high prices, as the implicit involvement of the Federal government gives them a sense of financial security.

- Federal Home Loan Mortgage Corporation (Freddie Mac) (1970)

- Federal National Mortgage Association (Fannie Mae) (1938)

- Government National Mortgage Association (Ginnie Mae) (1968)

- Federal Farm Credit Banks (1916)

- Federal Agricultural Mortgage Corporation (Farmer Mac) (1988)

- Federal Home Loan Bank Section (1932)

Profiles of Government Sponsored Enterprises (GSEs)