Investments, tenth edition

  Federal Agency Debt 

 Some government agencies issue their own securities to finance their activities. These 

agencies usually are formed to channel credit to a particular sector of the economy that 

Congress believes might not receive adequate credit through normal private sources. 

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6/18/13   7:41 PM

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36  P A R T  

I

 Introduction

 The major mortgage-related agencies are the Federal Home Loan Bank (FHLB), the 

Federal National Mortgage Association (FNMA, or Fannie Mae), the Government National 

Mortgage Association (GNMA, or Ginnie Mae), and the Federal Home Loan Mortgage 

Corporation (FHLMC, or Freddie Mac). The FHLB borrows money by issuing securities 

and lends this money to savings and loan institutions to be lent in turn to individuals bor-

rowing for home mortgages. 

 Although the debt of federal agencies was never explicitly insured by the federal govern-

ment, it had long been assumed that the government would assist an agency nearing default. 

Those beliefs were validated when Fannie Mae and Freddie Mac encountered severe finan-

cial distress in September 2008. With both firms on the brink of insolvency, the government 

stepped in and put them both into conservatorship, assigned the Federal Housing Finance 

Agency to run the firms, but did in fact agree to make good on the firm’s bonds.