The two companies, based in Washington, D.C., and McLean, Va., are government-sponsored enterprises, or GSEs, in government lingo. Their function is critical to U.S. housing and mortgage markets. Fannie and Freddie don’t make loans, but instead buy them from banks and other lenders. They package them into securities that are sold to other investors and provide guarantees to make those investors whole should loans default.
Investor demand for the securities is strong because the companies are currently backstopped by the U.S. government. They are required to send most of their profits to the Treasury in exchange for that support.
The companies are central to the popular 30-year mortgage, which locks in steady payments for buyers.
A Primer on the Future of Fannie, Freddie