Why does FNMA come up in bubble debates? They had nothing to do with CDOs
Fannie and Freddie had nothing to do with AAA-rated CDOs. Am I wrong? It's fine to attack Greenspan if your point is that ultimately, the government propped up this gigantic asset bubble, but Fannie and Freddie had nothing to do with AAA-rated CDOs.
Wasn't that subprime garbage the ultimate culprit, the pinnacle of the junk? Shouldn't we point ours finger at GS, AIG, and the Wang Chaus of the world, etc.?
Sorry if this is basic shit, but I just need it clarified.
uhhh
The purpose of FNMA is to securitize mortgages with the intention of expanding the secondary market by originating CDOs. Their underwriting standards are mimicked by the private sector, and so they are the trend setter. If THEY do it, then WE can do it.....that was the thinking.
Technically, no, they don't have anything to do with it. But in the larger picture, they have EVERYTHING to do with it. Much like the FED and the treasury aren't the same but are closely linked with economic policy, FNMA is a cog in the wheel of the housing market.
And yeah, it got fucked up.
thank you, and yes, that is correct, the GSEs did NOT originate CDOs.
This is somewhat true. law passed in 1992 forced the GSEs to add a mission of "affordable housing" to their mandates. The had to prove that they had an evenhanded distribution of loans across all income classes (high, middle, and low-to moderate or LMI). By 2007 55% of all securities held or insured by the GSEs were LMI mortgages. These 55% were generally subprime and/or Alt-A. Because the GSEs entered the market for subprime and Alt-A loans, the prices of the subprime mortgages and Alt-A kept rising and the Private securitizers had no way to compete- but still wanted subprime. This caused a demand (by both the GSEs and private) for more of those mortgages and alos increased the risk appetite of investors. This caused mortgage originators to try to offer more loans, and they did that through even riskier subprime/Alt-A.
Are you joking??? They had EVERYTHING to do with the bubble. It starts with the Fed keeping artificially low interest rates, government policy that forces/awards agencies to give mortgages to poor people who can't afford it and then it leads to Wall Street who can package the shit and sell it to people who don't understand/don't research/get scammed.
They contributed to both the bubble and the contraction. Fannie and Freddie preferred stock was held by banks all over the world as tier one capital because of the government's "implicit guarantee." When the feds decided only to back Fannie and Freddie bonds, banks holding large amounts of preferreds suddenly found themselves severely under-capitalized.
Fannie and Freddie contributed by artificially propping up low end (read subprime) demand for housing. Something like half of all mortgages were subprime at the start of the crisis. Are you suggesting that FNMA had nothing to do with this?
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