The Subprime Mortgage Crisis and Great Recession was caused by Bill Clinton and Fannie Mae and Freddie Mac

Posted by PITHOCRATES - December 18th, 2011

Week in Review

The Securities and Exchange Commission (SEC) has filed civil fraud charges against Fannie Mae and Freddie Mac for their part in the subprime mortgage crisis.  The charges say they misled investors about their subprime mortgage risk exposure (see SEC charges ex-Fannie, Freddie CEOs with fraud by Derek Kravitz, Associated Press, posted 12/16/2011 on The Washington Times).

According to the lawsuit, Fannie told investors in 2007 that it had roughly $4.8 billion worth of subprime loans on its books, or just 0.2 percent of its portfolio. The SEC says that Fannie actually had about $43 billion worth of products targeted to borrowers with weak credit, or 11 percent of its holdings…

Freddie told investors in 2006 that it held between $2 billion and $6 billion of subprime mortgages on its books. The SEC says its holdings were actually closer to $141 billion, or 10 percent of its portfolio in 2006, and $244 billion, or 14 percent, by 2008.

In a May 2007 speech in New York, Syron said Freddie had “basically no subprime exposure,” according to the suit.

Not 0.2% but 11%.  Not 0% but 10-14%.  This is some serious misrepresentation of the subprime mortgage risk exposure.  It goes from virtually no risk to a risk great enough to cause, well, a Great Recession.

Fannie and Freddie buy home loans from banks and other lenders, package them into bonds with a guarantee against default and then sell them to investors around the world…

Fannie and Freddie had traditionally purchased a small number of subprime mortgage loans, which involved borrowers with credit problems who could not qualify for cheaper prime loans. But starting in the late 1990s many firms started purchasing subprime loans, and Fannie and Freddie followed suit.

Yes, the late 1990s.  Just after the Clinton White House began pressuring lenders to qualify more unqualified borrowers.  In their Policy Statement on Discrimination in Lending.  As noted in a previous post.

Wall Street isn’t to blame for the subprime mortgage crisis.  Bill Clinton started it with his Policy Statement on Discrimination in Lending.  And then Fannie and Freddie bought these high risk mortgages and sold them as safe investments.  If anyone is to blame for the Great Recession it’s government.  And the government sponsored enterprises Fannie and Freddie.


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