Fannie Mae and Freddie Mac were the chief culprits in the housing crisis because they encouraged people who could not afford payments to borrow money, according to a congressional report released Tuesday.
But the report explains in detail how Fannie and Freddie -- government sponsored enterprises (GSE) that were not subject to the same oversight as other publicly traded firms -- “privatized their profits but socialized their risks.”
“In the short run, this government intervention was successful in its stated goal – raising the national homeownership rate,” says the report, the result of an investigation launched last fall by Republican members of the House Oversight and Government Reform Committee.
“However, the ultimate effect was to create a mortgage tsunami that wrought devastation on the American people and economy,” says the report. “While government intervention was not the sole cause of the financial crisis, its role was significant and has received too little attention.”
Fannie Mae and Freddie Mac made 54 percent of the “subprime” mortgage loans from 2002 to 2007, or about $1.9 trillion in mortgage loans to borrowers with credit scores lower than 660.
When are we going to restore sanity to the federal government?