There are a lot of bad things you can say about Fannie and Freddie: that they were part of the oversubsidization of housing in America, that they’ve had an overlarge side business of funneling cash to friendly politicians, that some of their “innovative” practices, like requiring the use of the electronic mortgage registration system, MERS, have proven to be detrimental (by clouding title and facilitating foreclosure abuses). And it’s pretty easy not to like the use of Fannie and Freddie as pretty much the only game in town now in mortgage-land.
But a common charge, “Fannie and Freddie caused the subprime bubble” is plain barmy. As we’ve noted on this blog repeatedly, with the generous help of Tom Adams, and also detail in ECONNED, collateralized debt obligations were a bigger driver of the toxic phase of subprime issuance (third quarter 2005 through 2007) than is commonly realized. And CDOs were created strictly from “private label,” meaning non-Fannie/Freddie mortgage pools.
McClatchy (hat tip lambert strether) does a nice job of shredding this erroneous line of attack on the GSEs, with simple talking points to use with resistant true believers:
Subprime lending offered high-cost loans to the weakest borrowers during the housing boom that lasted from 2001 to 2007. Subprime lending was at its height from 2004 to 2006.
Federal Reserve Board data show that:
* More than 84 percent of the subprime mortgages in 2006 were issued by private lending institutions.
* Private firms made nearly 83 percent of the subprime loans to low- and moderate-income borrowers that year.
* Only one of the top 25 subprime lenders in 2006 was directly subject to the housing law that’s being lambasted by conservative critics.
Yves here. As we and others have pointed out, Fannie and Freddie’s share of lending to moderate and lower income borrowers FELL as the subprime market became reckless:
This much is true. In an effort to promote affordable home ownership for minorities and rural whites, the Department of Housing and Urban Development set targets for Fannie and Freddie in 1992 to purchase low-income loans for sale into the secondary market that eventually reached this number: 52 percent of loans given to low-to moderate-income families….
But these loans, and those to low- and moderate-income families represent a small portion of overall lending….
Between 2004 and 2006, when subprime lending was exploding, Fannie and Freddie went from holding a high of 48 percent of the subprime loans that were sold into the secondary market to holding about 24 percent, according to data from Inside Mortgage Finance, a specialty publication. One reason is that Fannie and Freddie were subject to tougher standards than many of the unregulated players in the private sector who weakened lending standards, most of whom have gone bankrupt or are now in deep trouble.
During those same explosive three years, private investment banks — not Fannie and Freddie — dominated the mortgage loans that were packaged and sold into the secondary mortgage market. In 2005 and 2006, the private sector securitized almost two thirds of all U.S. mortgages, supplanting Fannie and Freddie, according to a number of specialty publications that track this data.
Fannie and Freddie are not only zombie financial firms, they seem to have more than the normal number of zombie news stories associated with them.
Read more: http://www.mcclatchydc.com/2008/10/12/53802/private-sector-loans-not-fannie.html#ixzz0vnuihQnz