As Mortgage Rates Spike, How Do We Prevent Future Housing Disasters?

Did Fannie and Freddie help create the housing bubble?

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Anna J Schwart's article on the origins of the financial crisis also has a brief section on the role of Fannie Mae and Freddie Mac in the market for mortgage-backed securities. Most commentators seem to have downplayed Fannie and Freddie's influence on the housing bubble, but not Schwartz.

Starting under the Clinton administration and continuing through Bush's term, the HUD kept boosting the minimum amount of mortgages purchased by Fannie and Freddie that were for low-income borrowers. Schwartz continues:

Between 2000 and 2005 Fannie Mae and Freddie Mac met those goals every year, and funded hundreds of billions of dollars’ worth of loans, many of them sub-prime and adjustable-rate loans made to borrowers who bought houses with less than 10 per cent deposits. Fannie Mae and Freddie Mac also purchased hundreds of billions of sub-prime securities for their own portfolios to make money and help satisfy HUD affordable-housing goals.

She concludes that Fannie and Freddie provided a convenient way for Congress to promote home ownership without having to go through the budget. Her implication is that government-sponsored enterprises are not an appropriate means to promote political goals.