Fannie Mae and Freddie Mac, the financial institutions that now stand behind more than 75% of the single family mortgages in the U.S., assured senators last Wednesday that their collapse was unlikely, just one day after Alan Greenspan, the chairman of the Federal Reserve, warned they could pose a threat to the economy if their ability to assume new debt isn't restrained.
Fannie Mae and Freddie Mac were originally created by the U.S. government to create a secondary market for mortgage loans. They buy mortgages from banks and mortgage lenders, package them up, and sell them to investors. This process refreshes the amount of money those banks and mortgage lenders have available to lend, thereby assuring a continuous supply of mortgage loans. Both of these institutions were later separated from the government and are now public corporations.
Greenspan's comments increased the political pressure for increased regulation of these companies, which started after Freddie Mac's accounting scandal last spring.
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