WHAT ARE THEY?

Fannie Mae and Freddie Mac are government-sponsored enterprises and the nation's largest buyers and insurers of mortgages. They pool some of the mortgages they buy from banks and sell them to investors, which effectively makes them middlemen between banks and investors. Fannie and Freddie hold or back more than $5 trillion in mortgages, about half the outstanding mortgage debt in the U.S. They are publicly owned and their stock is traded on the open market.

WHY WERE THEY CREATED?
To give low- and middle-income Americans the chance to buy homes at a reasonable interest rate. The money they provide to banks to lend to people also is supposed to help stabilize the mortgage market in times of stress by ensuring sufficient resources for loans. Fannie Mae was created by the government in 1938, when millions of families could not become homeowners or risked losing their homes; Freddie Mac was established in 1970 to expand the secondary market for mortgages.

WHAT'S THE PROBLEM?
Over the past year, mortgages have defaulted at a faster rate, and companies have had to take billions of dollars in losses. Fannie and Freddie are required by their government regulator to have a financial cushion - cash or securities to fall back on. With losses rising, that cushion has been dwindling. That has forced them to raise new money when it has been expensive and difficult to do so. Fannie and Freddie lost a combined $5.1 billion last year and $2.35 billion in the first quarter of 2008.