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Government Sponsored Entities (GSEs)

A government-sponsored enterprise's (GSE) function is to enhance the flow of credit to targeted sectors of the economy and to make those segments of the capital market more efficient and transparent. It is technically a financial service corporation created by the United States Congress.

Another goal of a GSE is to reduce the cost to achieve credit and reduce the risk of capital losses to investors. The most common entities are the Federal Home Loan Mortgage Corporation, or Freddie Mac and Federal National Mortgage Association, or Fannie Mae. (Ginnie Mae came along in an 1968 and Sallie Mae was created for education loans was launched in 1972)

GSEs are not in the business to lend money directly to consumers. Their function is to act as a pseudo insurer in that they guarantee third-party loans and act as a purchaser of loans in the secondary market. In simple form, they give money to lenders and financial institutions.

This excerpt for GSE is regarding mortgage lending - GSE’s also issue short- and long-term bonds which are known as agency bonds.

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