Economics: Politics Most Blatant

Affordable housing goals and the Community Reinvestment Act did not cause the Great Recession ...

The relative market share of Fannie Mae and Freddie Mac dropped fairly dramatically during the 2000s bubble, from a high of 57 percent of all new mortgage originations in 2003, down to 37 percent at the height of the bubble in 2005 and 2006. Notably, this decline occurred contemporaneously with the unsupported rise in housing prices and the deterioration in underwriting standards that virtually all observers blame for the collapse of the housing markets.

Mortgages originated for private securitization defaulted at much higher rates than those originated for Fannie and Freddie securitization, even when controlling for all other factors (such as the fact that Fannie and Freddie securitized virtually no subprime loans). Overall, private securitization mortgages defaulted at more than six times the rate of those originated for Fannie and Freddie securitization.

Or consider that a virtually identical bubble occurred in the U.S. commercial real estate mortgage market. There is no government policy FCIC Republicans can point to that encouraged lenders to loosen underwriting standards for malls or office buildings.

Even after Fannie and Freddie plunged into the market for these mortgage-backed securities, they never accounted for more than a fraction of the demand for these securities. (see graph)

For more, see Politics Most Blatant by David M. Abromowitz, David Min, December 21, 2010 at Center for American Progress.