I commend the Post for trying hard to bring some common sense and order to the highly contentious subject of who’s to blame for the 2008 economic collapse.
The Post points out that Fannie and Freddie did not start securitizing and selling large quantities of subprime and other exotic loans until 2007 or so, by which time private label securitizers had already sowed the seeds of disaster. Amen to that. The Post then asserts that Fannie and Freddie did, however, buy hundreds of billions of dollars worth of subprime securities for their own portfolios starting in 2003. Amen to that too.
The Post then concludes that Fannie and Freddie did not create the subprime crisis (amen, amen) but rather that they "enabled" it, to enrich their shareholders and management (amen), and to meet affordable –housing goals (“Oops, where this did come from?). You do not say it but you once again insinuate – perhaps unwittingly -- that the setting of affordable housing goals and the making of loans to low- and moderate income borrowers are largely to blame for bringing down the economy.
The problem with the Post’s role as arbiter of who’s to blame for the housing crisis is that the Post leaves more questions unanswered than it appropriately puts to rest. First, the Post needs to fully ascertain to what extent the setting of affordable housing goals had anything to do with the GSEs’ buying and selling of millions of defective subprime and exotic loans that were made to all borrowers regardless of race, ethnicity, or income.
More fundamentally, the Post needs to take into account and address notable research groups such as the McKinsey Global Institute, who found through exhaustive research and analysis that it was middle- and upper middle-income borrowers that propelled the housing bubble – not lending to low-income borrowers who were buying a home for the first time.
According to the study, lenders had “determined” that these borrowers did not qualify for prime loans because of “poor credit histories” and instead made subprime loans to them that required no down payment or low or no documentation of income. By 2007, 60 percent of all “subprime” loans required little or no documentation. It is astounding therefore to imagine that the sheer promotion of affordable homeownership and making of mortgage loans to low-income minorities and immigrants triggered more than $6 trillion in housing wealth losses that the nation has incurred since 2005.
As you draw the conclusion that the “old government-sponsored enterprise” model is a proven failure, don’t forsake consideration of what worked well in the past prior to the crisis. The establishment of a new mortgage finance system requires that Federal housing finance objectives be prioritized within the context of historical and well grounded national housing policy. With respect to the broader national commitment to decent, safe, and sanitary housing for every American, housing finance policy must balance the goals of affordable quality rental housing and sustainable homeownership. It should ensure not only the establishment of a safe, stable and reliable system of mortgage financing and securitization but also the availability of a constant and ample supply of credit to meet the nation’s needs for both rental and homeownership housing, especially among low- and moderate-income households.