<Ul> <Li> Banks can be assured that Fannie and Freddie have funds to purchase conforming loans, so they can increase such lending . This improves liquidity in the mortgage market, lowering interest rates . </Li> <Li> In 2006, Fannie and Freddie insured 24% of all subprime loans so they needed to keep these loans viable . </Li> <Li> Lower borrowing costs for banks typically increase the "spread" between the rate at which they borrow and which they lend . This increases bank profitability, shoring up bank liquidity and balance sheets further . </Li> <Li> Adjustable rate mortgage (ARM) rates are reduced, which lowers pressure on homeowners and reduces foreclosures . Lower rates also encourage new home purchases . </Li> <Li> The government's role as the primary investor allows a systematic loan refinancing process to be implemented . This should enable rapid loan adjustments or workouts for homeowners, which have been facing bottlenecks due to the requirement to have various investors approve the adjustments . For example, the government could rapidly push - down 45 - year mortgage terms and fixed, low interest rates, enabling many more homeowners to stay in their homes . This will reduce foreclosures significantly, helping to stabilize home prices . </Li> <Li> The government can restructure mortgages so that the loan balance is reduced to the current market value, reducing the incentive for homeowners to "walk away" from the property . </Li> <Li> With home prices more stabilized, the value of mortgage - backed securities receives some upward support . </Li> </Ul> <Li> Banks can be assured that Fannie and Freddie have funds to purchase conforming loans, so they can increase such lending . This improves liquidity in the mortgage market, lowering interest rates . </Li> <Li> In 2006, Fannie and Freddie insured 24% of all subprime loans so they needed to keep these loans viable . </Li> <Li> Lower borrowing costs for banks typically increase the "spread" between the rate at which they borrow and which they lend . This increases bank profitability, shoring up bank liquidity and balance sheets further . </Li>

Fannie mae and freddie mac in the financial crisis