What is a GSE (Goverment Sponsored Enterprise)?

What is a GSE?

1 Answer

A **GSE **is an acronym for a " Government Sponsored Enterprise". A Government Sponsored Enterprise, in the case of home lending is an entity that was created by Congress to facilitate home lending. Examples of GSE's are Fannie Mae (Federal National Mortgage Association) and Freddie Mac (Federal Home Loan Mortgage Corporation) and the 12 Federal Home Loan Banks. When people reference GSE's they are typically however referring to Fannie and Freddie.

Essentially Fannie and Freddie are companies that were created to help people obtain home loans. They were sponsored or created by government, but are not government entities. They are publicly traded corporations that issue stock and are held to reporting requirements just like any other bank, financial institution or public company.

Because they were created by governement, they were widely viewed as having an implicit government guarantee. That if something were to happen to either company, the government would step in and keep them from failing. This is essentially what happened on September 7th, 2008. The federal government, specifically the Federal Housing Finance Agency, took Fannie and Freddie into conservatorship. This meant that, rather than potentially letting either of them fail, the government would take them over and operate the companies. This act, turned the implicit guarantee (the thought that the government would stop either from failing) into a reality. By strict definition, this stopped both companies from being "GSE's" as they were no longer quasi-government, 'sponsored' entities, but were now wholly controlled by the government.

It remains to be see what role the government will play in the future of both Fannie and Freddie, whether they will at some point be turned loose, back into GSE's, whether they will be consolidated, or whether in some form or fashion they will be liquidated.