Fannie and Freddie Financial Innovations

“Fannie Mae and Freddie Mac were statutorily required to hold mortgages with at least 20% down payment. The way the GSEs [Fannie and Freddie] got around this restriction was to have private mortgage insurance.” Source.

Private mortgage insurance protected Fannie and Freddie but it didn’t protect neighborhood home prices from the high foreclosure rates of their low down payment mortgages.