Government sponsored enterprise

From Wikipedia, the free encyclopedia

The government sponsored enterprises (GSEs) are a group of financial services corporations created by the United States Congress. Their function is to reduce interest rates for specific borrowing sectors of the economy, farmers, and homeowners. The mortgage borrowing segment is by far the largest of the borrowing segments that the GSEs operate in.

1 Business
2 Ownership
3 List of organizations
- 3.1 Housing
- 3.2 Farming
4 See also
5 External links

[edit] Business

The GSEs have created a secondary market in these loans through securitization so that the primary market debt issues can be bought and—most importantly—traded by investors. Demand for debt securities drives up their trading price, which lowers their interest rates. Proponents say that this secondary market in consumer loans gives household borrowers cheap fixed rate loans (low fixed rates on long term loans), removes credit risk from banks' balance sheets and provides standardized instruments (securitized securities) for investors.

[edit] Ownership

Some of the GSEs, such as Fannie Mae and Farmer Mac, are publicly owned; others, such as the Federal Home Loan Banks, are owned by the corporations that use their services. Their lenders grant them favorable interest rates, and the buyers of their securities offer them high prices, as the implicit involvement of the Federal government gives them a sense of financial security.

In fact, GSE securities carry no government guarantee, implicit or explicit.