February 2016

Before starting, let me note that Fannie and Freddie contributed to the 2008 problem—by purchasing PLS (see below) — but they hardly were the cause of that debacle. Even the Congress’s 1992 imposition of affordable housing goals wasn’t the problem, except for ideologues who disdain government involvement in the economy, which is Peter’s lurking issue.

The Fannie and Freddie mortgages and the mortgage securities they issued between 1992 and 2005 had an exemplary small default and foreclosure level, because they were cautiously and carefully underwritten despite the “goals.”  (Read the works of David Fiderer and/or Barry Ritholz.)

That record is there for anyone willing to read government and media reports to review and verify.

Here is where friend Peter gets in trouble and resorts to “weasel wording” and political bloviating.

Peter choses to ignore Wall Street’s calamitous and failed GSE-cloning campaign—from @2004 through 2007—going it alone without Fannie and Freddie; excluding the GSE systems (providing more money for the banks and IBs); to underwrite its own mortgages, using brokers paid by the loan; issue $2.7 Trillion of its own mortgage backed securities (called Private Label Securities or PLS), and get those bonds falsely rated by their captive rating agencies.

Those mortgage backed securities sold worldwide, failed very quickly when the US mortgage market softened and were the major problem, which made our economic woes an international one.

Fannie’s and Freddie’s loans/MBS had three times better performance, even in the downturn. (Think about why the banks required over $500 Billion in TARP assistance and the GSEs, only $187 Billion, with most of that now questioned because of the fact each could have accessed the market for debt in 2008?)

It’s also important to note that only F&F had Treasury a Treasury repayment scheme where the principle “borrowed” never can be repaid, which is why they since have given the Treasury over $240 Billion. Much of that number and the government’s unique demands are now subject to more than 20 lawsuits (and raising the question of what two Administration’s Treasury secretaries were attempting to achieve)?

When Peter Wallison begins acknowledging those facts and the non-government responsibility, i.e. private sector, for the financial mess eight years ago, then I might be encouraged to read some of his commentary.”