6 Critical Insights into Fannie Mae and Freddie Mac's Impact on the Housing Crisis

3. The Housing Bubble and the Role of Fannie and Freddie

As Fannie Mae and Freddie Mac continued to buy risky mortgages, they inadvertently fueled the housing bubble. Their actions encouraged lenders to engage in reckless lending practices and made investors overly confident in the safety of mortgage-backed securities. When the housing bubble finally burst, the result was a wave of foreclosures, a sharp decline in home prices, and a severe recession.