Economics: No, the Affordable Housing Push Didn't Cause the Subprime Crisis

It's one of the biggest misconceptions about the housing crisis: the belief that the government's policies to promote affordable housing — particularly through Fannie Mae and Freddie Mac — fanned the flames of the subprime mortgage market, ultimately bringing down the entire economy.

Affordable housing goals may have introduced some distortions and created perverse incentives in the mortgage market but these were not the driving force behind the tremendous growth of subprime and Alt-A loans in the private market, explains Cristian deRitis, a director at Moody's Analytics. Fannie and Freddie pursued what turned out to be the riskiest loans not to meet the affordable housing mandate, but instead to increase profit, as they were assumed to be higher yield, deRitis tells me.

For more, see No, the Affordable Housing Push Didn't Cause the Subprime Crisis by Suzy Khimm, March 29, 2012 at Wonkblog.