Who pay for the "Guarantee" ?

Fannie Mae and Freddie Mac make loans and loan guarantees as well as handle the secondary mortgage market in the US. The other way Fannie and Freddie made money was when they began to repurchase their own mortgage-backed securities and to buy similiar securities that were created by Wall Street without the G.S.E. guarantee, and hold them in a portfolio. Fannie and Frddie pocked the difference - between what the mortgages yielded and the companies' own cost of borrowing funds.

The mortgage-backed securities issued by Freddie Mac, Fannie Mae, and Ginnie Mae carry payment guarantees that transfer much of the default risk of these agencies. Freddie Mac guarantees the timely payment of interest on its Participation Certificates and also guarantees the ultimate payment of principal on the underlying residential mortgage loans by no later than the just ultimate payment of principal on the underlying residential mortgage loans by no later than the stated final payment date. It guarantees the timely payment (rather than just ultimate payment) of principal and interest on what are called its Gold Participation Certificates. Fannie Mae guarantees the timely payment of interest and principal on its Guaranteed Mortgage-Backed Securities. The mortgages underlying the Ginnie Mae securities are either insured by the FHA or guaranteed by the U.S. Department of Veterans Affairs. Freddie Mac will receive a $13.8 billion cash injection from the government. Freddie Mac experienced heavy losses as its portfolio of mortgage securities including risky subprime-backed securities. The securities lost value due to more borrowers fell behind or defaulted on mortgages.