Fannie, Freddie, and the Subprime Mort…

March 7, 2011 Briefing Paper no. 120
Fannie, Freddie, and the Subprime Mortgage Market

by Mark A. Calabria Mark Calabria is the director of financial regulation studies at the Cato Institute Published on March 7, 2011

The recent financial crisis was characterized by losses in nearly every type of in
no product has attracted as much attention as the subprime mortgage. What is generally agreed is that subprime mortgages disproportionately contrib severity of the crisis and to the size of losses imposed upon the taxpayer. What the role of government — specifically, that of Fannie Mae and Freddie Mac — availability of subprime mortgage credit. Changes in the mortgage market, resulting largely from misguided monetary po refinancing activity in 2003. When that origination boom died out, mortgage ind looked elsewhere for profits. Fannie and Freddie, among others, found those illu lowering credit quality. Foremost among the government-sponsored enterprises' deleterious activities wa purchases of loans that can only be characterized as subprime. Under reasonabl subprime, almost 30 percent of Fannie and Freddie direct purchases could be co The government-sponsored enterprises were also the largest single investor in su mortgage-backed securities. During the height of the housing bubble, almost 40 issued private-label subprime securities were purchased by Fannie Mae and Fre In order to protect both the taxpayer and our broader economy, Fannie Mae and be abolished, along with other policies that transfer the risk of mortgage default the taxpayer.
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org/pub_display. 120 © 2011 The Cato Institute Please send comments to webmaster www. and the Subprime Mort… Full text of Briefing Paper no.5/2/2011 Fannie.php?pub_id… 2/2 . Freddie.cato.

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