Government sponsored enterprise

The government sponsored enterprises (GSEs) are a group of financial services corporations created by the United States Congress. Their function is to enhance the flow of credit to targeted sectors of the economy and to make those segments of the capital market more efficient and transparent. The desired effect of the GSEs is to enhance the availability and reduce the cost of credit to the targeted borrowing sectors: agriculture, home finance and education.Fact|date=July 2008 Congress created the first GSE in 1916 with the creation of the Farm Credit System; it initiated GSEs in the home finance segment of the economy with the creation of the Federal Home Loan Banks in 1932; and it targeted education when it chartered Sallie Mae in 1972 (although Congress allowed Sallie Mae to relinquish its government sponsorship and become a fully private institution via legislation in 1995). The residential mortgage borrowing segment is by far the largest of the borrowing segments in which the GSEs operate. Together, the three mortgage finance GSEs (Fannie Mae, Freddie Mac and the 12 Federal Home Loan Banks) have several Quantify|date=September 2008trillion dollars of on-balance sheet assets.Fact|date=July 2008

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 YIELD. 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.Fact|date=July 2008

Ownership

Some of the GSEs, such as Fannie Mae and Freddie Mac, were privately owned but publicly chartered; 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 explicit government guarantee. [ William Poole, President of the Federal Reserve Bank of St. Louis, [http://www.stls.frb.org/news/speeches/2005/1_13_05.html GSE Risk] , 13 January 2005 ] In 2001 the then-director of the Congressional Budget Office, Dan L. Crippen, testifed before Congress that the "debt and mortgage-backed securities of GSEs are more valuable to investors than similar private securities because of the perception of a government guarantee. . . ." [ [http://www.cbo.gov/doc.cfm?index=2839&type=0 "CBO TESTIMONY Statement of Dan L. Crippen Director, Federal Subsidies for the Housing GSEs before the Subcommittee on Capital Markets, Insurance, and Government Sponsored Enterprises Committee on Financial Services U.S. House of Representatives" 23 May 2001] ] This perception has allowed Fannie Mae and Freddie Mac to save billions in borrowing costs. Estimates by the Congressional Budget Office and the Treasury Department put the figure at about $2 billion per year [ [http://www.cato.org/pub_display.php?pub_id=6047 CATO Institute, November 17, 1997] ] .

List of organizations

Housing

*The twelve Federal Home Loan Banks (1932)
*Federal National Mortgage Association (Fannie Mae) (1938-2008)
*Federal Home Loan Mortgage Corporation (Freddie Mac) (1970-2008)
*Government National Mortgage Association (Ginnie Mae) (1968)

Farming

*Federal Farm Credit Banks (1916)
*Federal Agricultural Mortgage Corporation (Farmer Mac) (1988)

References

ee also

*SLM Corporation, also known as Sallie Mae a former GSE
*Danish mortgage market
*Mortgage GSE controversy
*Government-linked company
*Crown corporations of Canada — Canada Mortgage and Housing Corporation
*Public company (public corporation)
*Public Sector Undertaking (Indian state enterprise)
*Public ownership
*Statsforetak (Norwegian state enterprise)
*State-Owned Enterprises of New Zealand
*Unitary Enterprise (Russian state enterprise)
*Volkseigener Betrieb (East German state enterprise)

External links

* [http://uscode.house.gov/uscode-cgi/fastweb.exe?getdoc+uscview+t01t04+10699+0++() U.S. Govt. definition of Government-Sponsored Enterprise - see Section 8]
* [http://www.investopedia.com/terms/g/gse.asp Investopedia Definition of Government-Sponsored Enterprise - GSE]
* [http://www.fanniemae.com Fannie Mae]
* [http://www.freddiemac.com Freddie Mac]
* [http://www.fhlb-of.com/mission/missionframe.html FHL Bank System]
* [http://www.farmermac.com Farmer Mac]
* [http://www.ofheo.gov OFHEO - regulator of Fannie Mae and Freddie Mac]
* [http://www.fhfb.gov FHFB - reguator of the Federal Home Loan Bank System]
* [http://www.fca.gov FCA - regulator of Farmer Mac and the Farm Credit System]
* [http://www.thebanker.com/news/fullstory.php/aid/1114/Striking_out_Fannie_Mae.html The Banker: Striking out Fannie Mae - 5 January 2004] (discusses the U.S., European, and Danish mortgage markets)