Fannie and Freddie function by buying, bundling and then stamping a government guarantee on mortgages. Then they sell them to investors. It keeps the banks happy because it keeps capital flowing, and it keeps consumers happy because it makes low, fixed-rate mortgages possible.<\/p>\n
At least that how things were supposed to unfold. But the two mortgage finance giants “made astonishing mistakes,” Raj Date, executive director of a financial policy think-tank called the Cambridge Winter Center, told NPR’s Audie Cornish.<\/p>\n
“As normal people everywhere in the country realized that housing prices seemed to be growing straight into the stratosphere, instead of becoming more conservative about lending against those ridiculously high values, Fannie and Freddie just continued to make the same kind of loans and indeed made more aggressive loans during that period of 2005, 2006, 2007,” Date said. “And it has all come back to haunt them.”<\/p>\n