On September 7, 2008, the United States government placed the Federal National Mortgage Association  (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac) into conservator ship, an event that resulted in the government taking on over US$5 trillion in credit guar tees is sued and loans in exposure to the US mortgage finance market. This development occurred when the government was facing other fiscal strains from an economy in recession and its efforts to stabilize financial markets and the banking system. The takeover of Fannie Mae and Freddy Mac prompts the question as to whether a mortgage finance industry can function effectively in normal times (in other words, outside a period of extreme financial stress) while both achieving housing objectives (in par tic u lar, promoting home ownership), and minimizing the vulnerability of taxpayers to adverse developments in the mortgage finance market.

This study examines this question by focusing on secondary markets and mortgage insurance in a review of US experience, including his tropical experience, in mortgage finance. It also looks at models used in other countries. History shows that the residential US mortgage finance market is prone to cat strophic losses from time to time. This suggests that creating a regulatory environment that can prevent future crises is unreal is a tic. Hence, it is important to focus on resilience as well as prevention. Second, many features of the US mortgage market prior to the crisis were a legacy of past events. The regulatory structure for private mortgage insurers reflected the impact on the industry of the results of the Great Depression. The structure and role of Fannie Mae and Freddie Mac reflected the need to fund mortgages during a time when financial institutions struggled to attract funding because of the low rates they could offer on deposits given regulatory restrictions.