BrianGarst.com

The WaPo brings us this shocker: Fannie and Freddie execs knew of risks in their behavior!

In a memo to former Freddie chief executive Richard F. Syron and other top executives, former Freddie chief enterprise risk officer David Andrukonis wrote that the company was buying mortgages that appear “to target borrowers who would have trouble qualifying for a mortgage if their financial position were adequately disclosed.”

…The documents, which the committee has not yet released but were obtained by The Washington Post, show that Fannie and Freddie, two linchpins of the nation’s mortgage market, continued to push into new, risky markets despite internal debate over whether the efforts were prudent.

…Fannie and Freddie’s distress has its roots in the new, risky mortgages the companies bought and guaranteed in increasing numbers, largely from 2004 through 2007. These new products included home loans made to people with blemished credit histories, called subprime loans, and mortgages made without verification of income, assets or employment, often called Alt-A.

As Mudd’s and Syron’s decisions have been called into question, they have described their push into these new areas of the mortgage business as an inevitable consequence of dueling mandates to support affordable housing and maximize profit for shareholders. And they’ve said that the collapse of the housing market was unforeseeable and the primary reason behind the company’s fall.

But the documents show how top executives at both companies were told that the new subprime and Alt-A loans were dangerous both to the companies and to the borrowers they were charted by Congress to help.

This article would have us believe that, because subprime loans harm low-income borrowers (they often do), and government was claiming to help low income borrowers, that it can’t be the government’s fault that these loans were given recklessly.  After all, they were told to help these people!  Well, not quite.  This argument displays an ignorance of simple political reality: what the government claims it wants and what it actually wants are often two different things.

Politicians can claim they wanted to help low-income borrowers all they want, but what they really sought to do was to LOOK LIKE they were helping low-income borrowers.  They were, in essence, pandering.  Emotionally, it’s easy to claim that securing loans for low-income borrowers was to their benefit, and that’s exactly what politicians did.  They even demagogued those responsible enough to try and stand in their way.  So Fannie and Freddie knew what the political fallout would be if they didn’t continue to pursue reckless, subprime mortgages. They also knew *wink, wink* that the taxpayers would be there to bail them out if they went under.  Is it any wonder they chose to ignore these warnings?

The government role in the operation of Fannie and Freddie, no matter how much big government cheerleaders try to deny it, is unquestionably responsible for their collapse.

Fannie Mae financial crisis Freddie Mac