Fannie Mae, Freddie Mac, and the Home Mortgage Foreclosure Crisis

Loyola University New Orleans Journal of Public Interest Law, Vol. 10, pp. 149-170, 2009

22 Pages Posted: 14 Oct 2009  

Christopher Lewis Peterson

University of Utah - S.J. Quinney College of Law

Date Written: April 1, 2009

Abstract

Following the Great Depression, the federal government was the primary architect of the secondary residential mortgage market. The foremost pillars of this federal involvement were the twin government sponsored enterprises (GSEs) Fannie Mae and Freddie Mac. In the public debate over the struggling American financial system, opponents of federal involvement in housing finance have persisted in asserting that Fannie Mae and Freddie Mac caused the home foreclosure crisis. This symposium essay attempts to provide a brief rebuttal to this surprisingly persistent oversimplification. It begins with historical context necessary for understanding the debate over the GSEs’ responsibility. Next it explains the development of the private, sub-prime home mortgage market, recounts the radical change in the GSEs’ investment and underwriting policies in the mid-2000s, and traces the events leading to the collapse and nationalization of the two companies. Although the GSEs began to engage in unacceptably risky investment decisions, the two companies were only one part of a larger more complex commercial and regulatory pattern that also included monetary policy, regulatory dereliction, judicial passivity, ill-advised borrowing, and reckless (or dishonest) brokering, appraising, lending, servicing, and securitizing by private financial services companies.

Keywords: Fannie Mae, Freddie Mac, subprime, mortgage, predatory, foreclosure, Alt-A, GSE

Suggested Citation

Peterson, Christopher Lewis, Fannie Mae, Freddie Mac, and the Home Mortgage Foreclosure Crisis (April 1, 2009). Loyola University New Orleans Journal of Public Interest Law, Vol. 10, pp. 149-170, 2009. Available at SSRN: https://ssrn.com/abstract=1489110

Christopher Lewis Peterson (Contact Author)

University of Utah - S.J. Quinney College of Law ( email )

383 S. University Street
Salt Lake City, UT 84112-0730
United States
801-581-6655 (Phone)
801581-6897 (Fax)

HOME PAGE: http://www.law.utah.edu

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