More on the Four Stupidest Economists Alive of 2010: Thomas, Hennessy, Holtz-Eakin, and Wallison
Richard Green tells us to look at Peter Wallison vs. Peter Wallison. Perter Wallison says that the GSEs ought to have been lending a lot more to the relatively high-risk low- and moderate-income homebuyers of America. By contrast, Peter Wallison says that the origin of the financial crisis was the government's unconscionable use of the GSEs as instruments of social policy to make lower-quality loans to high-risk low- and moderate-income homebuyers.
Peter Wallison, 2006:
The GSEs are not doing the job they should for low-income homebuyers: [T]he GSEs’ record in providing assistance for homebuyers of low and moderate income has not been good. The Department of Housing and Urban Development has long had regulations intended to focus Fannie and Freddie on low-income or affordable housing. HUD secretaries have set goals, but these have had little effect in helping ensure the GSEs meet the housing needs of the underserved.... [T]he GSEs were doing less than conventional lenders in helping the underserved.... Fannie and Freddie should do a much better job of providing affordable home financing to a neglected portion of the mortgage market...
Peter Wallision, 2010:
Primr: Government... was following a social policy in addition to an investment policy.... [D]uring the bubble’s expansion, the largest investors in the mortgage market, the government-sponsored enterprises (GSEs)—Fannie Mae and Freddie Mac—were instruments of U.S. government housing policy.... Subsidizing mortgages through the GSEs was a particularly politically expedient way to increase the homeownership rate.... During the inflation of the housing bubble, the GSEs lowered their standards and began investing in subprime and Alt-A mortgages... guaranteeing ever-riskier loans... MBS backed by subprime and Alt-A mortgages.... [T]he government supported the financing of high-risk mortgages... subsidized and, in some cases, mandated the extension of credit to high-risk borrowers, propagating risks for financial firms, the mortgage market, taxpayers, and ultimately the financial system...
