ABSTRACT

Government-sponsored enterprises (GSEs) are large financial institutions that function in secondary finance markets for the purpose of making credit more available to borrowers for home mortgages, agricultural loans, and student loans. Originally established by the federal government, most GSEs are now privately owned, although they still retain many characteristics of a public agency. Most GSEs are restricted by law to function only in the secondary market—they purchase or guarantee loans originated by primary lenders such as banks, thrifts, and mortgage banks. Because they have little direct interaction with the general public, GSEs function under the radar screen, but they are some of the world's largest financial institutions. Three of the major GSEs—the Federal National Mortgage Association (Fannie Mae), the Federal Home Loan Mortgage Corporation (Freddie Mac), and the Student Loan Marketing Association (Sallie Mae)—consistently appear in Fortune's list of the 500 largest companies. In this entry, we describe the creation of the GSEs, explain how GSEs function, explore the public and private characteristics of GSEs, and note some current issues facing GSEs.