D.C. This article is based on a policy analysis published by the Cato Institute. But few people can explain exactly what function those financial giants serve. Freddie Mac and Fannie Mae indirectly assist homebuyers by purchasing mortgages from lenders, such as commercial banks, savings and loans and mortgage banks. Freddie and Fannie, in turn, generally get those loans off their books by creating securities that are eventually paid off as the underlying mortgages are paid off.
Homeowners are happy because they are aided in borrowing money for a home.
Lenders are happy because they don't have to hold mortgages for several years. Investors in the securities are happy because they have a reliable investment, and Freddie Mac and Fannie Mae are happy because they make a handsome profit. That final benefit means they save billions in borrowing costs, just as lenders are willing to offer low-interest student loans that are guaranteed by the government. Allowing Congress to grant such special privileges is a bad idea. Those privileges, which are granted solely to Freddie and Fannie, crowd out other potential competitors in their market.