What is the purpose of GSEs like Fannie Mae and Freddie Mac?

The purpose of Government-Sponsored Enterprises (GSEs) like Fannie Mae and Freddie Mac is fundamentally to provide liquidity, stability, and affordability to the mortgage market. These entities were created by the federal government to support the housing market by ensuring that lenders have a reliable source of funding for home loans.

When Fannie Mae and Freddie Mac purchase mortgages from lenders, they replenish the lenders' capital, enabling them to issue more loans to homebuyers. This cycle increases the total funds available for home financing, promoting the overall health and stability of the mortgage market. Additionally, by helping to ensure that mortgage products are available and affordable, GSEs contribute to housing accessibility for a wider segment of the population. Their interventions in the market help maintain consistent standards for lending products, thereby fostering efficiency and predictability.

In contrast, the other options misinterpret the role of GSEs. They do not restrict access to the mortgage market, oversee interest rates, or eliminate private mortgage insurance, further clarifying their true mission of enhancing market function rather than imposing limitations.