What role do Fannie Mae and Freddie Mac play in the mortgage market?

What role do Fannie Mae and Freddie Mac play in the mortgage market?

• A. They provide loans directly to borrowers
• B. They create mortgage-backed securities
• C. They offer insurance to lenders
• D. They set interest rates for lenders

Answer: (B)

Fannie Mae and Freddie Mac play a critical role in the mortgage market by creating mortgage-backed securities. These government-sponsored enterprises (GSEs) do not lend money directly to consumers; instead, they buy loans from lenders, which allows those lenders to replenish their capital and make more loans to borrowers. By pooling these mortgages together and securitizing them, Fannie Mae and Freddie Mac issue mortgage-backed securities that can be sold to investors. This process helps increase the liquidity of mortgage credit in the market, lowers borrowing costs for consumers, and facilitates access to home financing, making them integral players in promoting stability and affordability in the housing market.

Fannie Mae and Freddie Mac play a critical role in the mortgage market by creating mortgage-backed securities. These government-sponsored enterprises (GSEs) do not lend money directly to consumers; instead, they buy loans from lenders, which allows those lenders to replenish their capital and make more loans to borrowers. By pooling these mortgages together and securitizing them, Fannie Mae and Freddie Mac issue mortgage-backed securities that can be sold to investors. This process helps increase the liquidity of mortgage credit in the market, lowers borrowing costs for consumers, and facilitates access to home financing, making them integral players in promoting stability and affordability in the housing market.