You may have missed Matt Phillips massive read Friday afternoon on the GSEs in the WSJ blog Marketbeat.

The entire piece is definitely worth your time, but I found one chart especially compelling: It shows Fannie & Freddie’s market share plummeting from over 70% to under 40%, as Wall Street securitized all manner of non-conforming mortgages:



There is no way to reconcile this chart with the jihadist blatherings of folks like AEI and CATO.

The facts of the matter are simply this: During the housing boom, it was Wall Street, and their mad purchases of Sub-Prime, Alt A and non conforming loans for their privately issued securitization that drove the credit bubble. Not, as the ideologically blinded Peter Wallison claims, Fannie & Freddie.

Class dismissed.

Fannie and Freddie: The Saga in Charts
Matt Phillips
Marketbeat, February 11, 2011

Category: Bailouts, Real Estate, Really, really bad calls

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

33 Responses to “Fannie/Freddie Market Share Plummeted During Boom”

  1. Moss says:

    Would be interesting and most likely further the lesson if the mortgages granted under the CRA, another scapegoat for the apologists, were similarly plotted.

  2. Sechel says:

    The Wall Street argument misses China,Spain,Ireland ,Spain,etc.

    Not enough has been made of how the global expansion of credit fueled housing world wide.


    BR: The #1 cause in my book was Greenspan’s ultralow rates — that is what set off the credit bubble around the world.

    The Street’s motiviation was (obviously) profit: Securitize the higher yielding junk paper, get it rated triple AAA, sell it as investment grade.

  3. Petey Wheatstraw says:


    I don’t know that the CRA granted, guaranteed, or otherwise meddled in mortgages, per se. Boiled down, I believe it was about access to banking and, by extension, credit for the credit worthy in lower income neighborhoods.

    Extending credit of any kind to high risk borrowers was a decision made solely by the banks (laying the groundwork for banker-friendly changes in the bankruptcy and usury laws).

    Housing/mortgages is only one aspect of the banks’ extension of credit to high risk borrowers. It wasn’t always that food, clothing, and shelter could be purchased with credit. Even credit scores for one and all — something we accept as normal — are a relatively recent development in our economic system. Since the early 1980s, credit has not simply been extended to anyone with a heartbeat (and sometimes, those without a heartbeat), it has been aggressively marketed to anyone who would sign on the dotted line, regardless of ability to repay the “loan.”

  4. Sechel says:

    Even Wall Street recognized the importance of home buyer education programs in mitigating low FICO scores and high LTV loans(an obvious hallmark of CRA lending), something obviously missing from subprime.

    Where do most payment problems occur? Usually, the problems stem from poor upfront planning and counseling. Hence, one of the key factors we look for in a CRA portfolio is whether the borrower completed a GSE-accredited homebuyer education program. The best of these programs help the individual plan for emergencies that can arise with homeownership.;col1

  5. Looking at the chart from 1990 to 1997 Fannie/Freddie was losing market share to Privately issued.

    Then from 1997 to 2003 that trend reversed as Fannie/Freddie guidelines became more accommodative.

    Ask yourself one simple question: Would Mortgage Brokers (and their Borrowers) direct business to where qualifying guidelines were easier or more strict?

    On Fannie/Freddie’s lead, the Private Issuers followed suit (and expanded on) the dangerous path we had started down.

    So for placing blame on Fannie/Freddie vs Wall St, I think the honest answer is both.

  6. Lukey says:

    But could they have sold all that bad paper if Fannie and Freddie hadn’t been making a market in it first? Would anybody have bought this stuff if Fannie and Freddie hadn’t created a demand for it? I certainly don’t excuse the bankers – they sold paper they knew was crap because they could make a few bucks on it. But to imply the credit bubble didn’t have government housing policy embedded in its DNA is, I think, a bit misleading.

    BR: You are engaging in squishy thinking, and you seem to have a fundamental misunderstanding of securitization.

    For the prior 60 years, Fannie (and later Freddie) were doing the securitization of conforming mortgages. Then, Wall Street pushed them aside and TOOK OVER THE MARKET, by securitizing these nonconforming, higher yielding subprime mortgages.


  7. srvbeach21 says:

    The trend did not reverse from 1997 to 2003. Private issuers did not lose share during that time – it appears to be flat or slightly increasing. What lost market share was Gov’t-guaranteed; the GSE’s appear to have replaced this aspect of the market.

    The clear inflection point on the chart is in 2003. Over the next few years the GSE’s market share, which %as consistantly in the 55%-70% range, drops to 40%. Private issuers’ share, which had not exceeded 25%, increased to 55%.

    Given that this coincided with a massive drop in lending standards, there should be little doubt to an objective observer as to what changed in the mortgage market. Further, given the similar declines in lending standards in markets that were outside the realm of the GSEs but in which the same private issuance structure was at work (CRE, private equity, leveraged loans, credit cards, etc.), it should be clear that the cause was not the GSE’s, but instead the private securitization model.

  8. Also, don’t be mislead by the chart. Yes, Fannie/Freddie lost market share, but the size of their portfolio was increasing all along. Wall Street just increased the size of the game.

    Also important to understand, the products themselves were not all “bad”, but it was the ungoverned use of these products that led to troubles.

    Example: Stated Income Loans. These were initially designed for Business Owners who have complex tax returns and financial scenarios that didn’t fit in the box easily then (and now, no longer do today). These Borrowers who had to show very high post closing liquidity, excellent credit history, and low LTV’s, had a way of getting a mortgage by stating their income (and these loans had lower default rates initially than traditional loans). But then brokers started selling their friends on the idea of, “Hey, I can give you a bigger loan than you really qualify for if you just overstate your income… but don’t worry, because nobody is going to check.”

    So Fannie/Freddie created the opportunity for “Liar Loans” and the free market (Wall St) jumped on the high profit bandwagon because in exchange for the ease of documentation, borrowers were willing to pay a premium on interest rate.

    What happened next is rising home values allowed those who might otherwise default on their “Liar Loans” to either refinance or sell their property (at a profit). That’s what drove the bubble.


    BR: I am quite surprised that a “Mortgage Advisor” is not familiar with what CONFORMING LOANS are . . .

  9. rktbrkr says:

    There are millions of Americans who feel, and will always feel, that the RE bust was due to gummint programs for po people in Detroit, Cleveland, Baltimore etc. and this was the fault of Roosevelt and Clinton. They also believe that there were WMDs in Iraq but the libruul media has covered it up.

  10. Petey Wheatstraw says:

    Mortgage Advisor Says:

    “Then from 1997 to 2003 that trend reversed as Fannie/Freddie guidelines became more accommodative.”

    So, what’s the excuse for the sea change that happened in 2003? Looking at the chart, that’s when MBS issuance by private interests began, in earnest. Did Fannie and Freddie suddenly become uber restrictive, or did the banks need to offload all of the bad loans they had floated?

    “Ask yourself one simple question: Would Mortgage Brokers (and their Borrowers) direct business to where qualifying guidelines were easier or more strict?”

    Again, ask that question in light of the sudden spike in 2003.

  11. Petey Wheatstraw says:

    Mortgage Advisor:

    Fannie and Freddie invented Liar Loans and pushed them on the banks? The GSEs enticed and entrapped the banks?

    “But then brokers started selling their friends on the idea of, “Hey, I can give you a bigger loan than you really qualify for if you just overstate your income… but don’t worry, because nobody is going to check.”

    Exactly. The Mortgage Brokers (and the ratings agencies, and the banks, and many borrowers, at the suggestion of the prior parties) committed fraud, and passed that worthless shit to the GSEs and the MBS market. The BROKERS were supposed to check, the bankers were supposed to check, and the Ratings Agencies were supposed to check.

  12. NoKidding says:

    The chart is for share of MBS issuance, not mortgage writing.

    Leverage and risk swapping melted Wall Street, which is doing fine running banks and collecting bonuses again.

    The root of the problem was loans written to people with unlikely odds of repaying. Fewer bad loans, smaller housing price bubble, fewer defaults. Fewer defaults smaller crash. The people who took the money are not doing fine (whether or not its their own fault).

    The chart you want to make this point is the share of motgages in default by year. If Fannie and Freddie show a significant spike in defaults during this crash (even if it is smaller than for Bear or Lehman) then they were also writing loans to people with unlikely odds of repaying. You can’t claim the moral high road by cheating on your wife less than your neighbor, stealing less than your senator or lying less than your lawyer. You did or you didn’t.


    BR: Keep in mind, Fannie & Freddie could ONLY do conforming mortgages most of their existences. It wasn’t until they began losing market share — as the chart shows above — that they began chasing non-conforming mortgages.

  13. Who, at CATO, is pushing the ‘CRA’-meme?

    AEI is one thing, but, CATO is another, no?

  14. Greg0658 says:

    srvbeach21 – “The clear inflection point on the chart is in 2003″ .. imo it matches the give back of Clinton surplus then an ohPoop moment the need to go to war and its funding mechanism

  15. Lukey says:

    So, if Fannie and Freddie helped goose the housing market by providing liquidity and a subsidized loan rate, and then the banks took that ball (goosed housing market) and ran with it, causing Fan & Fred to follow them down the bad paper rathole, I still don’t understand how one can suggest the bankers did this all on their own. And I also don’t understand how their losses could dwarf the private bank losses if they weren’t (at least on some level) complicit in this process. Again, I’m not condoning the bankers’ actions here, just trying to gauge the level of support they may or may not have received from the gse’s.


    BR: The GSEs have been providing liquidity for 70 years — I don’t think they have goosed the market — but they have been a major cog in it for decades.

  16. budhak0n says:

    If the data on this chart is correct, which we have no reason to question.

    Then “if” the risk was mostly assumed by private wealth and private individuals managing private wealth, then that’s a great thing.

    This means the risk of loss fell on the correct people.

    Oh wait, that’s right…. There was NO RISK OF LOSS. Since we bailed out the very entities who did this.

    That’s such an old school argument however. Died sometime in early 2009. Nobody cares and nothing is going to change. Just the same ole groups of people saying their neighbor is the one to blame for all the ills of the world.

  17. mind over blather says:

    You are correct. And that’s how it was supposed to work: where/when market participants can support the market, the GSEs were supposed to back off (i.e. acting in a countercyclical way). The problem is that the GSEs didn’t back off enough- they should have used this opportunity to stay completely out of Sub-prime (because the market had that covered) and ramp down their securitization in general. But alas the quest for EPS didn’t allow this.

  18. MorticiaA says:

    Mark E. Hoffer — in re CATO, you might start with Vern McKinley. I think he’s been the most CRA-as-main-culprit preacher over there.

  19. NoKidding says:

    Any of you experts know whats going on with Fannie/Freddie stock.

    It ramped up last weeks political activity on high volume.

    The news was vague, but implied continued the status quo, the gradual wind down of both GSEs.

    Now volume is still high, and price continues to be higher (50c) than it was pre-event (30c).

    Is the continued volume those who got in hoping for rainbows getting back out? If so, who is buying at the elevated price? If not who is buying? No rumors anoyt dividends coming back or FedGov getting out?

  20. socaljoe says:

    By my recollection, the balance sheet of the GSE’s was in the neighborhood of $6 trillion at the peak of the housing bubble… accounting for roughly half the residential housing stock in the US and six times larger than that of the Federal Reserve.

  21. jpeace70 says:

    @Luckey and anyone who wonders what blame the gov’t has in all of this…consider Gramm–Leach–Bliley Act (GLB), AKA “Financial Services Modernization Act of 1999″. It all boils down to needing regulation to keep the inevitable greed tamped down.

  22. MorticiaA,

    thanks for the point out..

    though, it seems that the majority, if not all, of his writings on CRA took place in the ~mid-90s..

    from what I’ve seen, I don’t hear him arguing that ~”CRA was the lynchpin to the ‘CreditCrisis’” ..

  23. Lukey says:

    “It all boils down to needing regulation to keep the
    inevitable greed tamped down.” But if we’re going to blame the
    government for a lack of effective regulation, don’t we also have
    to blame them for an excess of liquidity (i.e. Fed policy) which is
    the fuel the “goosed” housing market ran on? Wasn’t that (in
    effect) running this market on nitro methane rather than the plain
    old gasoline it had been running on? I just fear an over reliance
    on regulation because a) it has a habit of creating unintended
    consequences and b) tends to either be un-enforced or

  24. Joe Friday says:

    Mortgage Advisor,

    “Looking at the chart from 1990 to 1997 Fannie/Freddie was losing market share to Privately issued. Then from 1997 to 2003 that trend reversed as Fannie/Freddie guidelines became more accommodative.”

    That’s just wrong.

    HUD, which has been the regulator of Fannie & Freddie since 1992, did not become “more accommodative” until 2004:

    * In 2000, as HUD revisited its affordable-housing goals, HUD restricted Freddie and Fannie, saying it would not credit them for loans they purchased that had abusively high costs or that were granted without regard to the borrower’s ability to repay.

    * But by 2004, when HUD next revised the goals, Freddie and Fannie’s purchases of subprime-backed securities had risen tenfold. Foreclosure rates also were rising.

    That year, President Bush’s HUD ratcheted up the main affordable-housing goal over the next four years, from 50 percent to 56 percent. John C. Weicher, then an assistant HUD secretary, said the institutions lagged behind even the private market and “must do more.”

    “That was a huge, huge mistake,” said Patricia McCoy, who teaches securities law at the University of Connecticut. “That just pumped more capital into a very unregulated market that has turned out to be a disaster.”

  25. JimRino says:

    This is what I like to call “Fraud as an Inflation Source”:

    “The Street’s motivation was (obviously) profit: Securitize the higher yielding junk paper, get it rated triple AAA, sell it as investment grade.”

    Inflation is NOT always and everywhere a monetary phenomenon.
    This misrepresentation of mortgage quality, fraud, had an inflationary effect.

  26. jpeace70 says:

    @Luckey I can’t help but use these analogies…a teenager who has some rules is a lot less likely to go b-s-wild than one who has none…and yet one who is restricted too much, will inevitably reach a point of rebellion. It’s why we need police and the military, although we shouldn’t rely on them to make sure we all don’t turn into thieves and tyrants, the mere existence should quell overall anarchy.

  27. bear_in_mind says:

    Thank you Barry for calling attention to the “Wallison School of BS”!

    The data and implications are as clear as day. What makes me crazy is the propagandists who attempt to spin this into something it is not. It’s as if bank robbers have been given full access to the media to ‘sell’ their side of the story, castigate the people (i.e. homeowners, realtors, GSE’s, regulators) who purportedly victimized them, then obfuscate with rationalizations as to why they bear zero responsibility for the results of their actions.

    Who hasn’t seen bromides such as, “How could I know what would happen? Everyone else was doing it, so I had no choice. It’s not as if borrowers didn’t benefit, right? Imagine what would have happened to the economy if we hadn’t done this. We helped pull the economy out of a recession!”

    It’s relativism, pure and simple – in service of wanton greed and hubris.

    The real danger is that when we citizens let this tripe pass as “conventional wisdom”, we engage in the process of legitimizing these lies… which in many cases, serve to excuse or obscure criminal conduct. Unchallenged, it’s like a viral infection that risks inculcating corruption into our cultural DNA. No less than John Bogle observed this re-scripting of civic fidelity giving rise to “A Crisis of Ethic Proportions.”

    Whether or not changes in regulation are the ’cause’, an unmistakable correlation is evidenced in the economic crises heaped upon American citizens since government began the deregulation experiment in the early-80′s. The panoply of incentives/disincentives MUST be rebalanced, and bad actors must be held to account (i.e. jailed and/or stripped of ill-gotten gains) if we’re to return to a functional economic system.

    A Crisis of Ethic Proportions (WSJ – April 21, 2009)

  28. DrSandman says:

    Don’t we also need to know the total amount of loans made (in addition to the fractional market share)? Did their portfolio actually decrease during the boom, or did it just not increase as fast as everyone else? Just because they weren’t as greedy as everyone else does not mean that they are blameless. BR seems to have a fetish to make FanFred pure as the white driven snow, and I think that everyone in the 2003-2009 mortgage crisis is at least a little bit dirty.


    BR: No, thats incorrect — Recall we were SHORT F&F in 2008 — and I have been a critic of their hybrid structure, as well as their current use as a backdoor bailout for the banks

    What I have is a fetish about are the weenies who are trying to escape blame for their ruinous, radical deregulation of banks and Wall Street

  29. DeDude says:

    The scary thing about that chart is that it demonstrated that if you leave housing to be financed by the private providers then house financing (sales etc.) simply dies after a financial crisis. With no government or Fannie and Freddie to take care of it, who will finance housing next time? The simple answer is that whoever is the big private entity securitizing mortgages at that time, will then be TBTF and government will have no choice but to bail them out. All the talk about getting rid of Fannie and Freddie is simply a way for the private issuers (who this time around were allowed to eat a lot of their own loses, because there were other entities to take over the job), to ensure that next time the government will be forced to bail them out.

  30. louis says:

    A Crisis of Ethic Proportions (WSJ – April 21, 2009)

    Interesting until he says “Free-market champion and former Federal Reserve chairman
    Alan’ Greenspan shares my view.”

  31. bear_in_mind says:

    @Louis — Good catch! One could argue that the “Johnny Come Lately” tour Greenspan has been on to rehabilitate his tarnished legacy is another example of relativism — and Bogle cites “Easy Al’s” excoriation by an unnamed journalist as an example of the scrutiny we should be treating these lies.

  32. rfullem says:

    three items: First look at the fed “senior” loan officer survey Jan 2005. It say in black and white that GSEs were not the major influence on mortgage underwriting, profits were. Moreover they were lending more while demand was dropping – and this was only Jan 2005

    ” How important have been the following possible reasons for the increase in the share of residential mortgage loans held by commercial banks?”

    1. Strong demand for residential mortgages has made it more profitable to originate and hold these instruments by supporting the returns on them. 1.82
    2. The fraction of newly originated loans that have adjustable rates, which are better suited for holding in bank portfolios, has risen. 2.04
    3. Interest rate spreads between underlying residential mortgages and the yield on mortgage-backed securities widened enough to make the underlying loans attractive to hold, despite the greater liquidity and lower risk-weighted capital charge on most mortgage-backed securities. 1.56
    4. The share of newly originated loans that cannot be purchased by the government sponsored mortgage enterprises (GSEs), either because they exceed the conforming loan limit or for other reasons (e.g., insufficient credit quality), has risen. 1.38
    5. The GSEs have chosen to slow the rate of growth of their portfolios, reducing their demand for mortgage loans. 1.12
    Other (Please specify) 2.67

    how has demand for mortgages to purchase homes changed over the past three months?
    Moderately stronger 2
    About the same 33
    Moderately weaker 15
    Substantially weaker 1

    how have your bank’s credit standards for approving applications from individuals for mortgage loans to purchase homes changed?
    Tightened somewhat 0
    Remained basically unchanged 47
    Eased somewhat 4

    second, if you advertise that you are “ethical” and say so under oath before Congress, you should not be given a pass. Prove it in court. GS annual report business principle “Integrity and honesty are at the heart of our business. We expect our people to maintain high ethical standards in everything they do, both in their work for the firm” and in their personal lives.” others

    Finally, – today DIMON SAYS IN 12 MONTHS TIME, WORRIES THAT EXCESS CAPITAL WILL LEAD TO PEOPLE “DOING STUPID THINGS” – what kind of jerk says this? J. Dimon: “Mr taxpayer and Mr Obama, it was the evil ‘excess capital’ that made me make “bad loans” and ruin peoples lives. It wasn’t my fault.” Are you kidding?. A good caning is in order.

  33. [...] it better… which is why I want to call your attention to Barry Riholtz who notes in his blog The Big Picture that it was Wall Street, and their mad purchases of Sub-Prime, Alt A and non conforming loans for [...]