Fannie and Freddie are corrupt operations that exercise abysmal risk management during the housing boom. The accounting scandal at Fannie would have put it out of business long before the housing bubble popped if not for the implicit government backing that ensured its creditors that they did not need to worry about how badly the companies were run. Both crippled themselves by blindly taking on mortgage risk during the housing boom. In the end, they wound up costing taxpayers more in a single year than all the savings they had ever provided to home buyers.
They represent one of the worst policy disasters in American history. In the market, the consequence of extreme failure is going out of business. But for government sponsored entities, it is expansion.
So let's take a closer look into this Fannie and Freddie expansion into supporting the funding for independent mortgage companies.
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