Wall Street Bankrolled Mortgage Meltdown, Center for Public Integrity review

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Wall Street, Not Fannie and Freddie, Led Mortgage Meltdown

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Michael Hudson Michael Hudson – Mon Jan 17, 2011news.yahoo.com - The Daily Beast

Mortgage giants Fannie Mae and Freddie Mac have been cast as the major villains of the financial crisis, but Michael Hudson reports that Wall Street firms were the prime offenders.

Ask many Americans who’s to blame for the nation’s economic mess, and two names come to mind: Fannie and Freddie.

They see Fannie Mae and Freddie Mac as the villains of the financial crisis.

GOP.gov, the official website for Republicans in the House of Representatives, says flatly: “Fannie Mae and Freddie Mac were the main cause of the nation’s current financial turmoil.” Many critics, including Republican appointees to the federal Financial Crisis Inquiry Commission, blame the two government-chartered mortgage underwriters for pushing lenders to make riskier loans and leading the way into the financial crash.

There’s a problem with this narrative: The numbers tell a different story, a Center for Public Integrity review finds.

The evidence indicates Fannie and Freddie contributed to the mortgage meltdown, but they played a secondary role to Wall Street. Wall Street firms and the mortgage lenders they bankrolled led the growth of the market for subprime loans and other risky mortgages.

Government data show Fannie and Freddie didn’t take the same risks that Wall Street’s mortgage-backed securities machine did. Mortgages financed by Wall Street from 2001 to 2008 were 4½ times more likely to be seriously delinquent than mortgages backed by Fannie and Freddie.

Tagging Fannie and Freddie as the primary suspects in the mortgage debacle diverts attention from bigger offenders and from policy decisions that helped create the climate for out-of-control lending.

Some 6 percent of Fannie- and Freddie-sponsored loans made during that span were 90 days late at some point in their history, according to Fannie and Freddie’s regulator, the Federal Housing Finance Agency. By contrast, the FHFA says, roughly 27 percent of loans that Wall Street folded into mortgage-backed investments were at least 90 days late at some point.

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