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Government Policies in sub-prime crisis

US government got more inclined towards the mortgage industry to make home purchases more favorable and ended up fanning the boom by relaxing lending standards of Fannie Mae and Freddie Mac.

This has increased the ownership in residential mortgages of the government sponsored enterprises viz. Fannie Mae and Freddie Mac to a staggering $5.1 trillion.

This assumes importance when looked at in relation to net-worth of GSE’s as of 30th June 2008 which was a mere $114 million which raises serious doubts on their ability to service their guarantees.

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