Many have been blamed for the mortgage meltdown that sparked the 2008 financial crisis – Wall Street, politicians, Fannie & Freddie, loan originators, and irresponsible borrowers, to name a few. All contributed. This inside look into Freddie Mac sheds some light on their involvement and lack of preventative measures.
Occupy Wall Street is denouncing banks and Wall Street for “selling toxic mortgages” while “screwing investors and homeowners.” And the federal government recently announced it will be suing mortgage originators whose low-quality underwriting standards produced ballooning losses for Fannie Mae and Freddie Mac. Have they fingered the right culprits? There is no doubt that reductions in mortgage-underwriting standards were at the heart of the subprime crisis, and Fannie and Freddie’s losses reflect those declining standards. Yet the decline in underwriting standards was largely a response to mandates, beginning in the Clinton administration, that required Fannie Mae and Freddie Mac to steadily increase their mortgages or mortgage-backed securities that targeted low-income or minority borrowers and “underserved” locations.
Read the rest at the Wall Street Journal.