Monday, September 22, 2008

How does Fannie Mae and Freddie Mach make money

The two companies, created to increase home ownership and provide market stability in times of turmoil, own or guaranteemore than 40 percent of U.S. residential mortgages. They make money by buying both home-loans and mortgage-backed securities, funding their purchases with low-cost debt. They also guarantee home-loan securities, putting their AAArating behind the debt to attract investors. The firms mainly buydebt guaranteed by each other and U.S. agency Ginnie Mae, known as agency mortgage securities.

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