It’s the high/middlebrow equivalent of forwarding on to millions of people a chain email your crazy uncle sent—without even clicking over to Snopes.com.
The Times lends Wallison the most valuable space in journalism to write, speciously, that the housing bubble has returned. Okay. But in doing so it lets him claim yet again that government policies caused the housing crisis—a line so blatantly false that Barry Ritholtz dubbed it the Big Lie of the Crisis. And that’s seriously problematic.
Both this bubble and the last one were caused by the government’s housing policies, which made it possible for many people to purchase homes with very little or no money down. In 1992, Congress adopted what were called “affordable housing” goals for Fannie Mae and Freddie Mac, which are huge government-backed firms that buy mortgages from banks and other lenders. Then, as now, they were the dominant players in the residential mortgage markets. The goals required Fannie and Freddie to buy an increasing quota of mortgages made to borrowers who were at or below the median income where they lived.
No mention of the deregulation that Wallison and AEI pushed or of Wall Street’s massive subprime securities machine or of the global wave of cash searching for return or of shady credit raters or of fraud. It was the gubmint wot done it—all by itself!
This isn’t just wrong. It’s worse than that. Compare what Wallison says now to what he said before the crash.
In 2002, for instance, he criticized the government for not forcing Fannie and Freddie to make “appreciable” subprime loans:
Over both Republican and Democratic administrations, HUD has failed to adopt regulations that would require Fannie Mae and Freddie Mac to use a significant portion of the profits they derive from their government support to add appreciably to the housing finance resources available to low-income families.
Now here’s he writes in the Times today:
In 1992, Congress adopted what were called “affordable housing” goals for Fannie Mae and Freddie Mac, which are huge government-backed firms that buy mortgages from banks and other lenders. Then, as now, they were the dominant players in the residential mortgage markets. The goals required Fannie and Freddie to buy an increasing quota of mortgages made to borrowers who were at or below the median income where they lived.
Through the 1990s and into the 2000s, the Department of Housing and Urban Development raised the quotas seven times, so that in the 2000s more than 50 percent of all the mortgages Fannie and Freddie acquired had to be made to home buyers who were at or below the median income.
Nor was this some one-off comment. It was part of a consistent browbeating of the GSEs and what he called ineffective government policies pushing subprime loans. In 2002, Wallison had this to say:
Study after study has shown that (Fannie and Freddie) are doing less for those who are underserved in the housing market than banks and thrifts. Not only do they buy fewer mortgages than are originated in minority communities, the ones they buy tend to be seasoned and thus less risky. Despite Fannie’s claims about trillion dollar commitments, they are meeting their affordable and minority housing obligations by slipping through loopholes in the loosely written and enforced HUD regulations in this area.
In recent years, study after study has shown that Fannie Mae and Freddie Mac are failing to do even as much as banks and S&Ls in providing financing for affordable housing, including minority and low income housing.
Since 1992, Fannie and Freddie have had an obligation to assist in financing affordable and low income housing. Obviously, doing so would be costly, and would thus reduce their profitability. Studies now show that their performance in financing low income housing—especially in minority areas—is far worse than that of ordinary banks.
The two masters referred to in the title, of course, were the GSEs’ government mission, on the one hand, and-on the other-the fiduciary duty of their managements to maximize their profitability. I argued that these two masters could not both be served, and the one that was not getting its due was the government mission.
Which is actually correct. The GSEs move into subprime came at the tail end of the bubble as they sought to compete with Wall Street, which had decimated its market share in mortgage securities: