The current credit crisis has taken the United States by storm with people from nearly all walks of life being affected by it. It has to be said however that this sub-prime crisis as it is known was a long time coming with its roots being laid much earlier than 2008. Since Greenspan lowered the interest rates to 1% which saw increased lending, investment banks found themselves with a lot of money and enough to spare as well (Krugman). This therefore led to the increased demand for mortgages leading to the need to allow more people to take out mortgages. This is where the crisis started.
In the midst of the credit crunch, mortgage lenders had a big role to play. Two such institutions were the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac). Both of these are privately owned but government sponsored enterprises which issue out mortgages. Their unique status means that the private investors can enjoy the profits made by these enterprises if any and they can bank on the US government coming to their rescue if they start making losses which provides these two with a unique level of assurance, allowing them the ability to take greater risk.
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