Few decisions made by Fannie Mae, Freddie Mac, or their regulator, the Federal Housing Finance Agency (FHFA), are more important than how the government-sponsored enterprises (GSEs) price their guarantees. Yet the controversy over the GSEs’ recent pricing changes has shown that the process remains poorly understood. To dispel some of the confusion, we explain in this brief what drives pricing decisions in financial services markets and how the GSEs address these challenges in pricing their business. We conclude with thoughts on why their approach makes sense and how it could be improved, focusing on the changes that should be made to an insufficiently risk-sensitive capital rule that puts unnecessary upward pressure on their pricing.