The role of the Fannie Mae/Freddie Mac duopoly in the American housing market

Purpose - The purpose of this paper is to provide a brief introduction to the role of the Fannie Mae/ Freddie Mac duopoly in the American housing market. Design/methodology/approach - First, the paper defines the “government sponsored enterprise,” which is the type of hybrid public/private entity that Fannie and Freddie are and provides an introduction to the other significant government sponsored enterprises. It then explains what Fannie and Freddie do in the American mortgage market and provides a brief history of how the two companies developed. Finally, it evaluates the two companies as duopolists in the conforming mortgage market. Findings - The paper concludes by suggesting that the current financial crisis presents an opportunity to rethink whether the Fannie/Freddie duopoly continues to serve the public interest. Research limitations/implications - Because of its length, the paper does not review alternative approaches to the status quo that the US Government can take to ensure that it has a stable federal housing finance policy. Practical implications - The paper argues that the current financial crisis provides an opportunity to revisit the design of the structure of the US housing finance market. Originality/value - The paper sets forth the rationale and legal basis for characterizing Fannie Mae and Freddie Mac as duopolists.