Originally Posted By: blue water pro
Fannie & Freddie were not the cause of the collapse, they played a role, of course they did, but most economist would disagree with the claim that they had anything to do with the collapse because they were not the big players. Both combined only wrote 1 in 4 loans...or 25%. Wall Street firms underwrote the majority 75% and those 75% were much bigger and riskier loans.

"In other words, Fannie and Freddie were mostly bystanders to the worst excesses of the housing bubble. Since it popped, they and the more explicitly government-backed team of the Federal Housing Administration and Ginnie Mae (which buys FHA-insured loans) have been crucial to keeping the mortgage and housing markets going. In January, Congress raised Fannie's and Freddie's loan limit temporarily to as much as $729,750 to aid struggling high-priced housing markets on the coasts.

With house prices falling in most of the country, though, even the relatively safe loans acquired by Fannie and Freddie are starting to turn sour at much higher-than-expected rates."

http://economistsview.typepad.com/economistsview/2008/07/did-fannie-and.html


First of all, Fannie and Freddie don't write loans, they purchase loans from originators. During the Clinton Admin, Congress in a very bi-partisan move with very heavy support from the Clinton folks, lowered the loan requirements for Fannie and Freddie, ie, they were allowed to buy much riskier loans. This was the start of the snow ball that came to a head with the sub prime mortgage meltdown. Every politician supported the original endeavor and almost everyone turned a blind eye to the impending implosion of Fannie and Freddie. However, most don't know that because during this period Fannie and Freddie were doing so many loans, FHA eased many of their underwriting requirements as well to get in on the action. Today, FHA is on the hook for tons of mortgages and the taxpayer is far from off the hook in this mess.