Fannie Mae and Freddie Mac are central to the US housing market US mortgage giant Fannie Mae did not cause the crisis in the American housing market, its former boss has told a key Congressional committee. By the time Fannie Mae had started its riskier loan investments in 2005, "the roots of the present crisis had long taken hold," said Franklin Raines. Mr Raines' comments came in written testimony to the House Oversight and Government Reform Committee. Fannie Mae and sister firm Freddie Mac had to be bailed out in September. They were rescued by the government in a move that could cost the US taxpayer $200bn (£137bn). Giant losses The two firms are now being administered by the Federal Housing Finance Agency until their long-term future is decided by President-elect Barak Obama's new administration in the New Year. FREDDIE MAC & FANNIE MAE The two firms: Buy mortgages from approved lenders and then sell them on to investors - rather than lending directly to borrowers Guarantee or own about half of the $12 trillion US mortgage market Are relied on by almost all US mortgage lenders Supply funds to meet consumer demand for mortgages Link mortgage lenders with investors - keeping the supply of money widely available and at a lower cost Have no direct UK equivalent

Q&A: Freddie Mac and Fannie Mae The importance of Freddie and Fannie Together, Fannie Mae and Freddie Mac guarantee or own about half of the $12 trillion US mortgage market - and the US government has now effectively assumed responsibility for that sum. They do not lend directly to homeowners, rather they buy mortgages from approved lenders and then sell them on to investors. As a result, they are relied upon by almost all US mortgage lenders. Over the year to September the two companies lost nearly $14bn as growing numbers of homeowners defaulted on their mortgage loans. The giant losses led to the government bail-out. US President George Bush said at the time that they were taken over because they posed "an unacceptable risk" to the economy. Mr Raines left Fannie Mae in 2004 following an accounting scandal. The crisis in the US housing market - which sparked the wider global credit crunch - was caused by multi-million bad mortgage debts. It spread around the world because much of this bed debt was repackaged into wider debt offerings which were subsequently resold. Critics say that the two mortgage giants, which as government-sponsored enterprises could borrow money cheaply for their mortgage business, were too lightly regulated.



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