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Former Fannie Exec: Housing Crisis Worse Than The Depression
Government’s Role In Crisis Is Cited
Edward J. Pinto, who was Fannie Mae’s chief credit officer in the late 1980s, recently said current efforts to rescue the mortgage industry are less successful than those used during the 1930s.
During a symposium at the American Enterprise Institute, Mr. Pinto said current mortgage modification efforts by the government and banks are not effective because there are more defaults of Federal Housing Administration loans than there were for the Federal Home Owners Loan Corp. of the 1930s.
Mr. Pinto said that, while the subprime crisis was often compared to the Depression, there were differences that made the current problem more acute. The Depression-era collapse in housing prices did not generally put homeowners at risk of owing the bank more than their house was worth. That is not the case today.
Last month, Mr. Pinto also testified before a congressional committee. He said much of the blame for the subprime lending crisis belongs to Fannie Mae and Freddie Mac.
During his testimony, he said Fannie Mae and Freddie Mac played multiple roles in the subprime lending crisis. They went from being the watchdogs of credit standards and thoughtful innovators to the leaders in default-prone loans and poorly-designed products.
According to Mr. Pinto, Fannie and Freddie “introduced mortgages which encouraged and extended the housing bubble, trapped millions of people in loans that they knew were unsustainable, and destroyed the equity savings of tens of millions of Americans.”
He pointed to an acknowledgement in 2004 by Freddie that its flagship affordable housing program contained a large default rate.
“They decided to ignore the adverse impact on home buyers and just absorb the extra anticipated defaults,” he said.
Michael P. Tremoglie can be reached at mtremoglie@thebulletin.us
During a symposium at the American Enterprise Institute, Mr. Pinto said current mortgage modification efforts by the government and banks are not effective because there are more defaults of Federal Housing Administration loans than there were for the Federal Home Owners Loan Corp. of the 1930s.
Mr. Pinto said that, while the subprime crisis was often compared to the Depression, there were differences that made the current problem more acute. The Depression-era collapse in housing prices did not generally put homeowners at risk of owing the bank more than their house was worth. That is not the case today.
Last month, Mr. Pinto also testified before a congressional committee. He said much of the blame for the subprime lending crisis belongs to Fannie Mae and Freddie Mac.
During his testimony, he said Fannie Mae and Freddie Mac played multiple roles in the subprime lending crisis. They went from being the watchdogs of credit standards and thoughtful innovators to the leaders in default-prone loans and poorly-designed products.
According to Mr. Pinto, Fannie and Freddie “introduced mortgages which encouraged and extended the housing bubble, trapped millions of people in loans that they knew were unsustainable, and destroyed the equity savings of tens of millions of Americans.”
He pointed to an acknowledgement in 2004 by Freddie that its flagship affordable housing program contained a large default rate.
“They decided to ignore the adverse impact on home buyers and just absorb the extra anticipated defaults,” he said.
Michael P. Tremoglie can be reached at mtremoglie@thebulletin.us
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