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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About the Author

 

Edward J.
Pinto
  • American Enterprise Institute (AEI) resident fellow Edward J. Pinto is the codirector of AEI’s International Center on Housing Risk. He is currently researching policy options for rebuilding the US housing finance sector and specializes in the effect of government housing policies on mortgages, foreclosures, and on the availability of affordable housing for working-class families. Pinto writes AEI’s monthly Housing Risk Watch, which has replaced AEI’s FHA Watch. Along with AEI resident scholar Stephen Oliner, Pinto is the creator and developer of the AEI Pinto-Oliner Mortgage Risk, Collateral Risk, and Capital Adequacy Indexes.


    An executive vice president and chief credit officer for Fannie Mae until the late 1980s, Pinto has done groundbreaking research on the role of federal housing policy in the 2008 mortgage and financial crisis. Pinto’s work on the Government Mortgage Complex includes seminal research papers submitted to the Financial Crisis Inquiry Commission: “Government Housing Policies in the Lead-up to the Financial Crisis” and “Triggers of the Financial Crisis.” In December 2012, he completed a study of 2.4 million Federal Housing Administration (FHA)–insured loans and found that FHA policies have resulted in a high proportion of working-class families losing their homes.

    Pinto has a J.D. from Indiana University Maurer School of Law and a B.A. from the University of Illinois at Urbana-Champaign.

  • Phone: 240-423-2848
    Email: edward.pinto@aei.org
  • Assistant Info

    Name: Emily Rapp
    Phone: 202-419-5212
    Email: emily.rapp@aei.org

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