Agency Swap Program

A tool to bail out financial institutions that the government used to help alleviate the savings and loan crisis that took place in the 1980s.

The process worked by trading higher-risk mortgages held by the S&Ls for safer mortgage-backed securities issued by big-time mortgage giants Freddie Mac and Fannie Mae.

Freddie Mac (full name: Federal Home Loan Mortgage Corporation) and Fannie Mae (full name: Federal National Mortgage Association) are known as government-sponsored entities, or GSEs. They were created by Congress to help encourage home ownership, though they don't actually fall under direct government control (like, say, the Treasury Department does).

Because they have implied government backing, their bonds and mortgage-backed securities are considered low-risk investments (most of the time; see: Agency MBS Purchase).

In the 1980s, the savings and loan industry had over-extended itself, and the government was forced to step in to bail out some failing institutions. In order to shake loose assets held by some of the defunct S&Ls, the GSEs traded their mortgage-backed securities (which could be traded on exchanges) for bunches of individual mortgages. The process took place in 1990 and, eventually, $6.1 billion in mortgages were involved.