Maybe Fannie Mae Did Contribute To The Crisis, Part 2

See Maybe Fannie Mae Did Contribute To The Crisis for Part 1. And click on "Credit Crisis" in the archives list on the right side for more articles.

See Moving Beyond Fannie and Freddie: The experiences of other countries show there's no need for a government role in housing finance by Peter Wallison in the WSJ, page A17, 1-3-11. Exerpts:

"In 1992, Congress saddled Fannie and Freddie with a mission to support "affordable housing." This meant supplying credit for borrowers at or below the median income—mostly through subprime loans—and required that the GSEs reduce their underwriting standards by lowering down-payment requirements and buying other risky loans. But the new mission cemented their congressional support, and so Congress, joined by the housing industry, protected the GSEs from restrictive regulation almost to the day of their final collapse and government takeover on Sept. 7, 2008.

Research by Edward Pinto, a resident fellow at the American Enterprise Institute who was chief credit officer of Fannie Mae in the 1980s, has shown that by 2008 half of all mortgages in the U.S.—27 million—were subprime and other high-risk loans, often with little or no down payments by borrowers. Because of their affordable- housing requirements, the GSEs bore the risk of default on 12 million of these mortgages. The Federal Housing Administration (FHA) and other government agencies insured or held an additional five million. And banks under the Community Reinvestment Act, and other mortgage providers under a Department of Housing and Urban Development program, made another 2.2 million.

Thus, more than 19 million subprime loans were the responsibility of taxpayers, courtesy of the federal government's housing policies. The balance, slightly less than eight million loans, were securitized by Countrywide and other private issuers.

When the housing bubble began to deflate in 2007, these loans started to default in unprecedented numbers, driving down housing prices, forcing Fannie and Freddie into insolvency, and weakening financial institutions in the U.S. and around the world. Last October the GSEs' regulator, the Federal Housing Finance Agency, estimated that the final cost for bailing them out would be between $221 billion and $363 billion."