News Release

Setting the Record Straight

Today (June 10, 2008), the Washington Post, citing former HUD officials and academics, claimed HUD’s affordable housing goal requirements of Fannie Mae and Freddie Mac helped to fuel the collapse of the subprime mortgage market. This is a gross misrepresentation of much larger forces that were at work in the mortgage market. We believe it’s time for a reality check:

Congress requires that HUD set affordable housing goals for these government-sponsored enterprises. The largest jump in HUD’s required goals occurred in 2000. If, at any time, Fannie and Freddie believed the goal levels that HUD establishes are unattainable given current market conditions, they need only notify HUD. Until last summer, they did not.

After 2004, Fannie and Freddie struggled to reach out to the affordable marketplace but by then, subprime lenders had seized the market by offering borrowers mortgages with little or no underwriting requirements. As a result, the markets were less receptive to Fannie and Freddie’s loan products, preferring mortgages that in many cases proved irresponsible.

It’s also important to note that despite the downturn of the subprime market, 92 percent of all mortgages are being paid on time. Many of these previously underserved homeowners will remain homeowners today precisely because of these affordable housing goals, a point lost in the pages of the Washington Post.

On a related point, this Administration has long supported legislation to create a stronger, world-class regulator of Fannie and Freddie, and urges Congress to complete its work on this important bipartisan bill.

In conclusion, both Congress and HUD have long believed it is good policy to encourage Fannie and Freddie, as part of their public mission, to focus on underserved borrowers who were often shut out of homeownership. It’s disingenuous in the extreme to think that HUD’s policies in this area somehow aided and abetted the current subprime market situation. Markets are motivated by profit, period. When lenders and brokers opt to promote risky loan products based on poor underwriting, they do so at their own risk. If Freddie Mac and Fannie Mae are holding securities backed by these loans, it is because they were attracted to their yields and not because of a public policy designed to promote affordable homeownership.