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Fannie Mae and Freddie Mac

To encourage home ownership among lower income brackets, Fannie Mae and Freddie Mac guaranteed any high-risk loans made to this group. As the market became saturated by an increased demand for real estate, prices skyrocketed, creating an artificial housing bubble, since the new property was essentially owned by the banks in the form of their loans. When this bubble "popped", property values plummeted as demand fell, and banks were forced to foreclose on properties purchased with high-risk loans since Fannie Mae and Freddie Mac were not able to guarantee them. As the real estate market collapsed, other markets followed, and bank revenue plummeted as few new loans were being made and existing loans were resulting in foreclosure rather than profit. This prompted a government bailout of the financial industry, the auto industry, etc.