Fannie Mae and Freddie Mac, officially known as “government sponsored enterprises” or GSEs were at the center of the collapse What do they do? Do they offer loans to home buyers? No, they instead buy loans from banks on the secondary market. After a bank offers a home loan to a customer, it then sells the loan to Fannie or Freddie. So the loan is no longer on the originating bank’s books, because Fannie and Freddie are now responsible for it, receiving the income stream of monthly payments and bearing the risk if the homeowner should default. Fannie and Freddie may hold the mortgages in their own portfolios, but they often bundle them into mortgage-backed securities for sale to investors.








