Cleaning House: the financial crisis and the GSEs

Article Highlights

  • Fannie and Freddie are now estimated to have had combined $2 trillion in high-risk loans and securities

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  • GSEs misled the world about the massive buildup of risk in the mortgage market

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  • SEC's disclosure debunks criticisms against analysis of the nature of the mortgage crisis

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Late last week, the Securities and Exchange Commission charged the former executives of Fannie Mae and Freddie Mac with systematically misleading shareholders by grossly underestimating the levels of subprime and Alt-A loans in their single-family loan guaranty portfolios. Current management of Fannie and Freddie have agreed to cooperate with the SEC and to accept their findings, but they are not admitting wrongdoing for misleading investors about their firms' exposure to troubled mortgages.

I have used new information from the complaints to update the totals contained in my related paper Government Housing Policies in the Lead-up to the Financial Crisis: A Forensic Study. Fannie and Freddie are now estimated to have had a combined $2 trillion in high-risk loans and securities, amounting to 42 percent of their total single-family mortgage guarantees and investments.

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Edward Pinto is a resident fellow at AEI

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Edward J.
Pinto

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