What’s A GSE?
Government-sponsored enterprises (GSE) have a very important role to play in the American housing finance system. When I came across this sentence, I was quite stumped. I do know a bit about the American mortgage market, but what exactly constituted a GSE, I had no idea. That’s until now.
Firstly, let’s have a look at the existing GSEs Fannie Mae, Freddie Mac and the Federal Home Loan Banks (FHLBs). All of these are for-profit corporations owned by private shareholders. What makes them different is that each one is chartered by a specific act of the U.S. Congress. These acts allow special privileges and advantages to each of these entities. All the GSEs are among the largest issuers of debt securities in the world. These three entities especially represent a very large financial sector, with their combined assets accounting to more than $5 trillion. The GSEs can best be understood as representing a historical ‘paradigm shift’ in American housing finance from a deposit-based to a bond-based system. The key transition was the insolvency and collapse of the savings and loans in the 1980s, which made possible the ascendancy of Fannie Mae and Freddie Mac. These two GSEs filled the competitive space formerly held by several thousand savings and loans.
If you enjoyed this article, please bookmark it at del.icio.us »
