In my remarks today, I will offer some thoughts on how GSE regulatory reform could reduce the systemic risks posed by these organizations while increasing their institutional focus on promoting access to affordable housing. Public policy issues raised by GSE operations I will begin by discussing GSE operations and some issues of public policy raised by these activities.
Broadly speaking, Fannie Mae and Freddie Mac each run two lines of business. Their first line of business involves purchasing mortgages from primary mortgage originators, such as community bankers; packaging them into securities known as mortgage-backed securities (MBS); enhancing these MBS with credit guarantees; and then selling the guaranteed securities. Through this process, securities that trade readily in public debt markets are created.