The government guarantee for GSE debt inferred by investors enables Fannie and Freddie to profitably expand their portfolios of assets essentially without limit.4 Private investors have granted them a market subsidy in the form of lower borrowing rates, which staff at the Federal Reserve Board has estimated at 40 basis points in recent years.
This market subsidy is a formidable advantage in our  1  Under securitization, mortgages are bundled into pools and then turned into securities that can be easily bought and sold alongside other debt securities.