Government sponsored enterprise (GSE) mortgages are mortgages that are insured by the federal government. The purpose behind GSE mortgages is to facilitate home purchasing and to encourage financial institutions to lend money to those seeking to buy, which, in turn, stimulates the economy. Despite the recent economic turbulence in the U.S. housing market, GSE mortgages continue to be issued.
Providers of GSE Mortgages
The two main providers of GSE mortgages in the United States are Freddie Mac and Fannie Mae. These two entities account for billions of dollars in government-insured home loans.
History of GSE Mortgages
According to Fannie Mae’s mission statement, Fannie Mae was founded in 1938 as a federal agency. In 1968, Fannie Mae was chartered by Congress as a private agency. Fannie Mae currently issues loan insurance in single-family housing markets, community housing developments and capital markets.
According to Freddie Mac’s mission statement, Freddie Mac was founded in 1970 by congressional charter. Freddie Mac aims as part of its mission to keep funds flowing into the housing market.
Exploring Mortgage Benefits
Often GSE mortgages have a lower interest rate and lower closing costs than do other mortgage loans because financial institutions have traditionally viewed federal government-insured mortgages like GSE mortgages to be less risky than traditional mortgages.
Evaluating Potential Drawbacks
While GSE mortgages can provide savings to the homeowner, Freddie Mac and Fannie Mae have reevaluated their involvement in subprime lending, that is, dealing in the riskiest kinds of loans.This is due to the fact that these loans could leave many mortgage seekers in need of finding other means of financing a mortgage. There is a strong opinion among financial experts that subprime deregulation and overeagerness to disregard traditional lending practices helped spur the housing bubble and the collapse of that bubble.
Freddie Mac and Fannie Mae have suggested reinstating both stricter deregulation standards as well as new regulation practices to subprime and traditional lending as a way to return stability both to the market and to their organizations.
Troubles in Recent Years
In May 2010, Freddie Mac and Fannie Mae required lenders who had submitted poorly originated loans to repurchase over $3 billion worth of mortgages. Poorly originated loans are generally defined as loans that were provided to Freddie Mac and Fannie Mae by lenders that were subprime in nature and that originated through the deregulation process in 2004 and 2005.
