Responding to Wallison’s Latest Defense of His Flawed Financial Crisis Inquiry Commission Dissent
By David Min
July 2011


originally published at American



If you’ve been closely following the housing finance reform debate, you may have come across a pair of shrill blog posts penned by Peter Wallison, a senior fellow at the American Enterprise Institute and a Republican appointee to the Financial Crisis Inquiry Commission. He responded to my February 2011 article, “Faulty Conclusions Based on Shoddy Foundations,” which criticized the research underlying Wallison’s dissent from the majority of the members of that commission, and his contention that U.S. affordable housing policies caused the global financial crisis.

In these blog posts on The American Spectator’s blog on May 24 and on AEI’s blog on May 26, Wallison criticizes ”Faulty Conclusions” as “fallacious,” “fraudulent,” and “deceptive”; claims that it contains a “fake” chart; and describes the article as a “political screed.”

As I describe below, these accusations are baseless and distract from the fact that Wallison does not actually address the main arguments of “Faulty Conclusions.” Wallison does not contradict the claim that his FCIC dissent depends critically on the categorization of millions of home mortgage loans as “high risk” that are not actually high risk. Wallison also fails to answer other serious issues with his arguments that were pointed out in “Faulty Conclusions.”

This issue brief will reexamine my core criticisms of Wallison’s dissent from the Financial Crisis Inquiry Commission and respond to his criticisms of my column “Faulty Conclusions.”


Wallison, of course, wrote a lonely dissent from both the Financial Crisis Inquiry Commission majority report and from his fellow Republican commissioners, in which he alone blamed the global financial crisis on U.S. affordable housing policies. This argument is clearly contradicted by the facts, including the following:

• Parallel bubble-bust cycles occurred outside of the residential housing markets (for example, in commercial real estate and consumer credit).
• Parallel financial crises struck other countries, which did not have analogous affordable housing policies
• The U.S. government’s market share of home mortgages was actually declining precipitously during the housing bubble of the 2000s.

These facts are irrefutable.

Wallison’s argument, which places most of the blame on the affordable housing goals of the former government-sponsored enterprises Fannie Mae and Freddie Mac before they fell into government conservatorship in 2008, also ignores the actual delinquency rates. As David Abromowitz and I noted in December 2010:

“Mortgages originated for private securitization defaulted at much higher rates than those originated for Fannie and Freddie securitization, even when controlling for all other factors (such as the fact that Fannie and Freddie securitized virtually no subprime loans). Overall, private securitization mortgages defaulted at more than six times the rate of those originated for Fannie and Freddie securitization.”

So how did Wallison get to the conclusion that it was federal affordable housing policies that caused the crisis, despite the countervailing evidence? As Phil Angelides, chairman of the FCIC, has stated, “The source for this newfound wisdom [is] shopworn data, produced by a consultant to the corporate-funded American Enterprise Institute, which was analyzed and debunked by the FCIC Report.”

Angelides is of course referring to Wallison’s AEI colleague Edward Pinto. Wallison’s conclusion that federal affordable housing policies are primarily responsible for the financial crisis is based entirely on the research conclusions of Pinto, who finds that there are 27 million “subprime” or “high-risk” loans outstanding, with approximately 19.25 million of these attributable to the federal government’s affordable housing policies. As I point out in “Faulty Conclusions,” Pinto only gets to these numbers (which are radically divergent from all other estimates—for example, the nonpartisan Government Accountability Office estimates that there are only 4.59 million high-risk loans outstanding) by making a series of very problematic and unjustified assumptions.

Case in point: To support his claim that the Community Reinvestment Act, which requires regulated banks and thrifts to provide credit nondiscriminatorily to low- and moderate-income borrowers, caused the origination of 2.24 million outstanding “high-risk” mortgages, Pinto includes many loans originated by lenders who were not even subject to CRA. In fact, most of the “high-risk” loans Pinto attributes to CRA were not eligible for CRA credit.

Similarly, in arguing that Fannie and Freddie’s affordable housing goals caused the origination of 12 million “subprime” and equivalently “high-risk” loans, Pinto includes millions of loans that would not typically qualify for those goals. In fact, the vast majority (65 percent) of the “high-risk” loans Pinto attributes to the affordable housing goals of Fannie and Freddie fall into this category.

Wallison does not address these and other problems with Pinto’s research identified in “Faulty Conclusions.” Instead, he focuses all of his energies on defending one of my main critiques of Pinto’s work—that Pinto’s unilateral expansion of the definitions of “subprime,” “Alt-A,” and “high-risk” mortgages is both misleading and unjustified. So let’s deconstruct his attack on my research to demonstrate once again why he is simply wrong about the genesis of the U.S. housing crisis.

Wallison’s response

So how does Wallison go about defending Pinto’s work? He offers a series of disparate charges against the argument that Pinto’s expansion of the “high-risk” loan category is inappropriate. Notably, he does not actually address the central issue—that Pinto categorizes as “high risk” many millions of mortgages that are demonstrably not high risk. Let’s go over his main criticisms in turn.

Claim: It’s simply a disagreement over the correct meaning of “high-risk” lending

In his first blog post, published on May 24 on The American Spectator’s blog, Wallison summarizes “Faulty Conclusions” as merely a minor criticism about Pinto’s usages of the terms “subprime” and “Alt-A,” one that misunderstands the true intent of what Pinto is doing. Here is what Wallison says:

[Min is] arguing that Pinto’s definitions of subprime and Alt-A loans are not consistent with the definitions others have used for data collection and analysis. In other words, Pinto has used his own definitions to analyze the data in a new way.[i]

As the Financial Crisis Inquiry Commission and Pinto, among others, have all noted, the conventional definitions for “subprime” and “Alt-A” are imprecise, but generally refer to industry categorizations of loans with high-risk characteristics, loans made to high-risk borrowers, or loans with incomplete documentation of income or assets. Wallison is contending here that the central argument of “Faulty Conclusions” is simply a complaint that Pinto expanded the definitions of these terms, without considering the question of whether Pinto’s revised definitions actually make sense. This is, as anyone who’s actually read “Faulty Conclusions” would know, not accurate.

Pinto’s research does deserve criticism for its unilateral expansion of the terms “subprime,” “Alt-A,” and “high risk,” because it is confusing. For example, when Wallison, as he has done, cites a 25 percent serious delinquency rate for subprime mortgages (referring to the delinquency rate for actual subprime mortgages) and then states that there are 27 million outstanding subprime mortgages (referring to Pinto’s expanded definition of “subprime”), he is comparing apples and oranges in a very misleading way.

But contrary to Wallison’s assertion, this was not the entirety of “Faulty Conclusions’” criticism of Pinto’s newly invented definitions of “subprime” and “Alt-A.” Pinto’s expanded definitions are not only confusing but also unjustified. Pinto’s expansion of “high-risk” loans occurs primarily by including all loans made to borrowers with a FICO credit score of between 620 and 659 and all loans with a loan-to-value ratio of more than 90. Not only are these loans not generally understood to be “high risk,” but as demonstrated in the below chart from “Faulty Conclusions,” calling them “high risk” is inconsistent with their delinquency rates. These newly dubbed “high-risk” loans look much more like prime conforming loans than actual high-risk loans.

Claim: “Faulty Conclusions” includes a “fake” chart

Wallison also criticizes “Faulty Conclusions,” this time in a May 26 post on AEI’s blog, for relying on a “fake” chart, namely the one above. Specifically, Wallison states that this chart is “mislabeled as coming from the Mortgage Bankers Association’s (MBA) National Delinquency Survey for the second quarter of 2010,” and implies that this was an attempt to mislead readers into thinking that this chart was created by the MBA.

It is true that the chart is missing a line of attribution. Somewhere in the process of creating, editing, and posting that chart, a reference to Freddie Mac’s Second Quarter 2010 Financial Results Supplement got dropped from the chart itself. But the missing reference is actually contained in the accompanying text, immediately preceding the chart in question on pages 7–8, which both introduces the delinquency figures used in this chart and clearly sources them to the MBA’s National Delinquency Survey and Freddie Mac’s Second Quarter 2010 Financial Results Supplement.

In other words, Wallison’s accusation that this chart was “fake” and meant to “deceive” readers is baseless and contradicted by the actual text of “Faulty Conclusions.”

Claim: “Faulty Conclusions” overlooks Fannie and Freddie’s purchases of actual high-risk loans

Wallison also contends that the analysis in “Faulty Conclusions” overlooked Fannie and Freddie’s exposure to actual high-risk loans, through their purchases of AAA-rated subprime private-label mortgage-backed securities—those securities issued by investment banks and other private financial institutions, which are not tied to the federal government or its affordable housing policies. The implication is that Fannie and Freddie were creating most of the demand for these privately issued securities, which most analysts blame for the housing crisis. This claim actually gets to the core of the problem with Wallison’s argument.

It is of course well known, including by their regulator, the Federal Housing Finance Agency, that Fannie and Freddie were responsible for some actual high-risk loans, primarily through their purchases of high-risk private-label securities for their investment portfolio as well as through purchases of actual high-risk loans for their core securitization business. Yet as Wallison knows, this actual high-risk activity by Fannie and Freddie was neither sufficient in volume nor did it come at the right time to persuasively argue that the two mortgage finance giants drove the surge in actual high-risk lending we saw in the 2000s.

Did Fannie and Freddie buy high-risk mortgage-backed securities? Yes. But they did not buy enough of them to be blamed for the mortgage crisis.[ii] Highly respected analysts who have looked at these data in much greater detail than Wallison, Pinto, or myself, including the nonpartisan Government Accountability Office, the Harvard Joint Center for Housing Studies, the Financial Crisis Inquiry Commission majority, the Federal Housing Finance Agency, and virtually all academics, have all rejected the Wallison/Pinto argument that federal affordable housing policies were responsible for the proliferation of actual high-risk mortgages over the past decade.[iii]

Indeed, it is noteworthy that Wallison’s fellow Republicans on the Financial Crisis Inquiry Commission—Bill Thomas, Keith Hennessey, and Douglas Holtz-Eakin, all of whom are staunch conservatives—rejected Wallison’s argument as well.

This is why neither Wallison nor Pinto try to make the argument that the federal government was responsible for the proliferation of actual high-risk lending that occurred in the past decade, as such a claim would be quickly rejected as ridiculous. Instead, what Wallison and Pinto do—the key to their argument—is to expand the definition of “high risk” and “subprime” to include new categories of loans not ordinarily understood to be high risk. This expansion of “high-risk” lending is essential to the Wallison/Pinto argument that the mortgage crisis was caused by federal affordable housing policies.

Pointing to the fact that Fannie and Freddie bought some actual high-risk PLSs is thus irrelevant and does not address the claim that Pinto’s research relies critically on an improper and unjustified expansion of “high-risk” lending.

Claim: “Faulty Conclusions” fails to criticize all of Pinto’s “high-risk” categories of loans

Another Wallison criticism of “Faulty Conclusions” is that it mainly criticizes only two categories of Pinto’s “high-risk” loans. The first category is those with a FICO score between 620 and 659, or FICO 620-659 loans in mortgage industry parlance. The second category is high-risk loans with a loan-to-value ratio of more than 90 percent, or LTV>90 loans. In particular, Wallison takes exception to the fact that this criticism does not “mention the mortgages below 620 FICO … [of which] 14.4 percent were also seriously delinquent.”[iv]

There are two reasons I did not address these particular loans to borrowers with FICO scores under 620 in “Faulty Conclusions.” First, this is actually a relatively insignificant category of loans for Fannie and Freddie due to the heightened regulation for risk they enjoyed as specially chartered entities, which barred them from taking on excessive amounts of risk (although this regulation was clearly insufficient).

Loans made to borrowers with FICO scores under 620 account for only $60.8 billion of the $1.077 trillion in “high-risk” loans Pinto claims are held by Freddie Mac,[v] and a similarly small percentage of the “high-risk” loans Pinto claims are held by Fannie Mae.[vi] As a result, whether or not one criticizes Pinto’s description of these loans as “high risk” is immaterial. Adding them to FICO 620-659 loans held by Freddie Mac yields us a serious delinquency rate of 11.4 percent, compared to the 10.04 percent serious delinquency rate I listed for FICO 620-659 loans.[vii]

In other words, whether one criticizes or does not criticize Pinto’s characterization of loans made to borrowers with FICO scores under 620 as “high risk” is irrelevant. It does not change the basic point that these loans look categorically different from truly high-risk loans, which were originated almost entirely for private-label securitization and suffer a serious delinquency rate of more than 28 percent.

The second reason I did not criticize Pinto’s categorization of home mortgages with FICO scores below 620 as “high risk” is because, unlike with LTV>90 and FICO 620-659 loans, there is actually some legitimate debate over whether this particular characteristic should be considered high risk.[viii]

Contrary to Wallison’s assertion, Pinto’s unique contribution to the debate over the causes of the financial crisis was not the discovery that Fannie and Freddie had taken on some legitimately high-risk loans. As I note above, this fact is well known, including by Fannie and Freddie’s regulator. Rather, Pinto’s unique contribution to the debate was the creation of a new “high risk” category of loans, one which combines actual high-risk loans, which most everyone agrees are high risk, with new categories of loans that very few people think of as high risk.

To adapt the analogy Wallison uses in calling subprime mortgages bananas and Alt-A mortgages peaches, what Wallison is doing is offering up a medley of vegetables and fruits, prepared by Chef Pinto, and calling it a fruit salad. And to try to prove it is a fruit salad, Wallison will typically point out that it has characteristics of fruit, such as delinquency rates, which are higher than other types of loans.[ix]

What I tried to show in “Faulty Conclusions,” which is represented in the chart above, is that this fruit salad includes lots of vegetables, including corn (LTV>90) and asparagus (FICO 620-659), which do not have the characteristics of fruit. Moreover, the inclusion of these vegetables is integral to Pinto’s conclusion that affordable housing policies caused the crisis.

Rather than defend Pinto’s inclusion of loans that are not high risk in a “high-risk” category, Wallison chooses to criticize my omission of tomatoes (FICO<620) from my analysis. Of course, there are some legitimate reasons to claim that a tomato is a fruit, just as there are legitimate reasons to claim that mortgages with FICO<620 loans are high risk. But this still begs the question of whether there is any legitimate basis to label corn (LTV>90) and asparagus (FICO 620-659) as fruits.

More questionable numbers from Pinto

While Wallison avoided responding to the significant evidence offered in “Faulty Conclusions” showing that Pinto’s “high risk” loan categories of LTV>90 and FICO 620-659 loans are not actually high risk, Gene Epstein, the economics editor at Barron’s, does try to take on this claim with a little bit of help from Pinto. Specifically, Epstein criticizes “Faulty Conclusions’” comparison of the delinquency rates for LTV>90 and FICO 620-659 loans with the Mortgage Bankers Association’s National Delinquency Survey’s 6.8 percent delinquency rate for prime conforming loans. Relying on calculations performed by Pinto, Epstein argues that the MBA’s category of prime conforming loans actually contains many “high-risk” products:

Those “conforming” mortgages with the 6.8 percent rate include, for example, a lot of loans with below-660 FICO scores. When I asked Pinto to back all his high-risk categories out of the MBA data on “prime” loans, he found a 3.4 percent delinquency rate, or half as great as 6.8 percent.

Essentially, Epstein claims that prime conforming loans are not actually the safest possible category of mortgages, and so using them as a benchmark leads to misleading conclusions.

This sounds convincing but it’s wrong for two reasons. First, it is impossible to “back out” Pinto’s high-risk categories from the MBA’s delinquency numbers because the MBA doesn’t actually record its delinquency data based on the criteria used by Pinto. As MBA Vice President of Research and Economics Mike Fratantoni emailed to me:

“In our National Delinquency Survey, we receive aggregated data from servicers, not loan level data. Servicers identify their book or portions of their book as prime or subprime, we do not specify a specific FICO score cutoff. For that reason, there is no means for us to “back out” high-risk categories from prime loans.”

Moreover, as Fratantoni explained, under the MBA’s methodology, prime adjustable-rate mortgages, which were suffering a 13.75 percent delinquency rate, included some high-risk products (most notably option ARMs), but prime fixed-rate mortgages, which were suffering a 5.98 percent delinquency rate, did not include any of Pinto’s “high-risk” loans. Said Fratantoni:

“The prime FRM category does not include any [Pinto] high-risk products, but it also experienced a significant increase in delinquency and foreclosure rates due to the spike in unemployment and the steep drop in home prices.”

In short, not only is Pinto claiming that he can “back out” his numbers from the MBA’s delinquency survey—something the MBA says it cannot do itself—but Pinto’s “backed out” delinquency rate of 3.4 percent for fixed-rate and adjustable-rate prime mortgages is far lower than the MBA’s delinquency rate of 5.98 percent for fixed-rate prime mortgages, which contain neither Pinto’s “high-risk” mortgages nor adjustable-rate mortgages (which have defaulted at much higher rates than fixed-rate mortgages).

Clearly, Pinto is relying on some very large and unstated assumptions here to “back out” the MBA’s numbers.

The second reason Epstein is wrong about Pinto’s numbers is that he’s missing the key point being made in this comparison, which was that the unique categories of “high-risk” loans used by Wallison and Pinto contain large numbers of mortgages that are not actually high risk (and which could not be legitimately understood to have caused the mortgage crisis), as reflected by their relative delinquency rates.

The point of this comparison was not, as Epstein seems to assume, to imply that LTV>90 and FICO 620-659 mortgages are the safest loans possible, but simply to point out that it defies all logic to call these loan categories “high risk.” As such, it does not matter whether Pinto can or cannot back out a safer version of “prime conforming” than the MBA. Rather, the important question is whether and to what extent these loan categories can justifiably be called “high risk.” Looking at this from a different perspective, Pinto’s newly invented “high-risk” loans have serious delinquency rates that are essentially identical to the national average of 9.11 percent (again from the MBA’s National Delinquency Survey for Q2 2010). (see chart below)

It is difficult to understand how these loans are “high risk” unless one claims that all U.S. mortgages are “high risk,” in which case one would expect to see a much higher national delinquency rate, particularly given the historically high housing market price declines and unemployment levels we have experienced.[x]

Chefs Wallison and Pinto overlooked a couple of ripe fruits

Clearly, the Wallison/Pinto argument depends critically on an enormous expansion of the definition of “high-risk” lending. As such, it is very curious that they do not include two types of loans that are significantly riskier than LTV>90 and FICO 620-659 mortgages, based on the delinquency data, specifically:

  • Loans that were originated for private-label securitization
  • Loans with adjustable rates[xi]

Loans originated for these two categories have higher delinquency rates than LTV>90 and FICO 620-659 loans, and yet Wallison and Pinto ignore them.

Why? One answer may be that these loans were overwhelmingly originated for private-label securitization,[xii] a fact which directly contradicts Wallison’s preferred argument that the government was to blame for high-risk mortgages.

Whether or not the omission of these types of loans from their expanded definition of “high-risk” mortgages was ideological or not, it seems fairly inexcusable. Countless analysts, including the staff of the Federal Crisis Inquiry Commission where Wallison was a commissioner, have noted that mortgages originated for private-label securitization and mortgages with adjustable rates performed very poorly.


It is unfortunate that Wallison, who is a prominent conservative voice on financial markets issues, consistently fails to appreciate the deep problems with the Pinto research he has adopted as his own. As I pointed out in “Faulty Conclusions,” Pinto’s research is critically dependent on the broad and unjustified expansion of the definitions of “subprime,” “Alt-A,” and “high-risk” loans.

Moreover, and perhaps reflecting his ideological bias, Pinto fails to include two loan characteristics that are actually more indicative of risk than his newly added “high-risk” loans—whether a loan has an adjustable rate and whether a loan is originated for private-label securitization. These loans are, of course, overwhelmingly attributable to the private sector. And without question they are the genesis of the U.S. housing and financial crises.

David Min is the Associate Director for Financial Markets Policy at the Center for American Progress. He leads the activities of the Mortgage Finance Working Group, a group of leading experts, academics, and progressive stakeholders in housing finance first assembled by the Center for American Progress in 2008 to better understand the causes of the mortgage crisis and create a framework for the future of the U.S. mortgage system.


[i] Peter Wallison, “The True Story of the Financial Crisis—Responding to Criticism,” The American Spectator Blog, May 24, 2011, available at

[ii] Jason Thomas and Robert Van Order of George Washington University explicitly reject the claim that the affordable housing goals were a major driver of demand for subprime MBSs, for at least three reasons. First, Fannie and Freddie were only buying AAA-rated securities, which means that others were buying the riskier, lower-rated subprime securities. Second, unlike the lower-rated tranches, AAA-rated tranches had very short durations, which means that to a large degree, the two mortgage finance giants’ purchases of subprime securities were simply replacing their own expiring holdings. Third, Fannie and Freddie only purchased mortgage-backed securities, not derivatives such as collateralized debt obligations or credit default swaps. Thus, looking at their purchases of subprime mortgage-backed securities actually significantly overstates their share of the total offering of subprime securities (since synthetic collateralized debt obligations and credit default swaps could mimic the risk/reward offerings of mortgage-backed securities). Moreover, as Thomas and Van Order point out, the fact that synthetic CDOs and CDSs could be created without originating new loans essentially meant that the supply of subprime securities was infinite.

[iii] This blame primarily goes to private-label securitization, which, as I noted in “Faulty Conclusions,” is responsible for only 13 percent of all outstanding loans but 42 percent of all seriously delinquent loans. Conversely, Fannie and Freddie are responsible for 57 percent of all outstanding loans but only 22 percent of all seriously delinquent loans. If, as Wallison and Pinto claim, Fannie and Freddie were responsible for 12 million high-risk loans (of 27 million total high-risk loans), then one would expect to see an exponentially higher delinquency rate for Fannie and Freddie, and a much larger share of delinquent loans.

[iv] One other fundamental problem with the Wallison/Pinto argument that I did not raise in “Faulty Conclusions” is tied to this point. In general, the riskiness of a particular loan is not integrally tied to a single characteristic but rather to multiple characteristics, or “risk layering.” Loans with low down payments may or may not be high risk, depending on their other attributes. Loans with low down payments, made to borrowers with bad credit histories and who have adjustable teaser rates, are truly high risk, which is why they are categorized as high risk by lenders. The underlying assumption of Pinto’s work is that judging the riskiness of loans based solely on single loan characteristics is more accurate than lender determinations of risk. This assumption not only ignores one of the key principles of loan underwriting; it is, as I point out in “Faulty Conclusions,” contradicted by the delinquency data.

[v] Edward J. Pinto, “Sizing Total Federal Government and Federal Agency Contributions to Subprime and Alt-A Loans in U.S. First Mortgage Market as of 6.30.08,” Exhibit 2, p. 8–10, available at; “Freddie Mac’s Second Quarter 2008 Financial Results,” p. 26, available at Using Freddie Mac’s Q2 2008 financial results, Pinto combines Freddie’s Alt-A loans with all of the different categories that comprise his newly invented “Alt-A by characteristic” and “subprime by characteristic,” and then multiplies these by 80 percent to account for overlaps between the different categories. Freddie Mac lists $76 billion in loans made to borrowers with FICO scores under 620. Applying the same 80 percent discount factor to this $76 billion leaves us with $60.8 billion, which is 5.6 percent of the $1.077 trillion in total “high-risk” loans Pinto calculates are held by Freddie Mac.

[vi] $101.92 billion.

[vii] “Freddie Mac’s Second Quarter 2008 Financial Results,” p. 26. Freddie Mac lists a 14.44 percent delinquency rate on $64.9 billion ($9.37 billion) in mortgage with FICO scores below 620, and a 10.04 percent delinquency rate on $141.5 billion ($14.21 billion) in mortgage with FICO scores of between 620 and 659. Merged together, Freddie has a 11.44 percent delinquency rate on these loans ($23.58 billion seriously delinquent out of $206.4 billion total).

[viii] For the same reasons, I did not criticize Pinto’s categorization of option ARMs, actual subprime (what Pinto calls “self-denominated” subprime), or actual Alt-A (what Pinto calls “self-denominated” Alt-A) loans as “high risk.”

[ix] This is done through a chart provided by Wallison, available at: Joseph Lawler, “The True Story of the Financial Crisis — Responding to Criticism,” The American Spectator Blog, May 24, 2011, available at; Peter J. Wallison, “Financial Crisis Inquiry Commission, Dissenting Statement” (Washington: American Enterprise Institute, 2011), p. 462, available at The chart describes a delinquency rate for Fannie and Freddie “high-risk” loans of 17.3 percent and 13.8 percent, respectively. There are serious problems with this chart as well. First, Wallison and Pinto use a 30-day delinquency rate rather than the nine-day serious delinquency rate typically used by serious most objective analysts. This, of course, has the effect of significantly increasing the stated delinquency rates. For example, Fannie Mae had a serious delinquency rate on these types of loans of only 9.36 percent, as compared to the 17.3 percent listed. Moreover, the decision to use 30-day delinquency rates rather than serious delinquency rates is a very curious one, because all of Wallison and Pinto’s listed data sources (Lender Processing Services, Fannie Mae, Freddie Mac) provide serious delinquency rate data, but only LPS offers 30-day delinquency rate data. As a result, Wallison and Pinto had to “convert” Fannie and Freddie’s serious delinquency rate into “estimated” 30- day delinquency rates. Nor do Wallison and Pinto provide a description of the methodology used or assumptions applied in making this conversion. No such conversion would have been necessary if they had used the standard 90-day delinquency rates. Wallison and Pinto could simply have provided the serious delinquency rates, but this may not have provided the numbers they preferred to see.

[x] By way of comparison, the delinquency rate for urban home mortgages in 1934 was about 50 percent. See: David C. Wheelock, “The Federal Response to Home Mortgage Distress: Lessons from the Great Depression,” Federal Reserve Bank of St. Louis Review 90 (3) (2008): 138–139, available at As Wheelock notes, “comprehensive data on mortgage delinquency rates do not exist for the 1930s.” The delinquency rate for urban homes was compiled through a study of 22 cities by the Department of Commerce.

[xi] See, for example: Federal Housing Finance Agency, “Data on the Risk Characteristics and Performance of Single-Family Mortgages Originated from 2001 through 2008 and Financed in the Secondary Market” (2010), available at

[xii] Of course, all loans originated for private-label securitization were originated for private-label securitization. Adjustable-rate loans were disproportionately attributable to PLS as well. Ibid, p. 3. (“Enterprise-acquired mortgages were predominantly fixed-rate loans. Such loans comprised 88 percent of all Enterprise-acquired mortgages originated between 2001 and 2008. … mortgages financed with private-label MBS were predominantly adjustable-rate loans. Such loans comprised 70 percent of mortgages financed with private-label MBS originated between 2001 and 2008.”)

Category: Bailouts, Credit, 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.

38 Responses to “Wallison: Still Wrong About Genesis of Housing Crisis”

  1. camchuck says:

    Fun fact: The letters in ‘Peter Wallison’ can be rearranged to get ‘Twerp Loan Lies’

  2. Moss says:

    Ideological bias is of course the root of numerous dubious claims be them economic, scientific, social, or religious. It is important that ALL partisan based rationale be exposed as such.

  3. DataDweeb says:

    That is how you craft an argument. Thank you.

  4. Lukey says:

    Don’t get me wrong – I am not endorsing Wallison’s one-sided analysis and biased interpretations. But I wonder why I’ve seen no mention here of Gretchen Morganson’s and Joshua Rosner’s more nuanced approach that suggests that (indeed) much of what the Government and the GSE’s were doing at the time with respect to lending standards provided the media on which the banking crisis virus was able to grow into an epidemic of greed that almost took our economy down. I think the truth is that the banks behaved criminally but that much of the criminality would never have happened if the Government hadn’t put the “loosened lending standards” wheels in motion.


    BR: Because I haven’t read it yet (its in the queue behind Griftopia and others).

    Also keep in mind, I am friends with Josh, and this is an issue we have debated publicly and privately for about a century now.

  5. DebbieSmith says:

    Some analysts feel that land use over-regulation by various municipalities across the United States also contributed to the development and deflation of the housing bubble. By creating false shortages of land available for development, particularly in certain markets, the price of lots rose far beyond what would normally be expected. In general, housing prices were far less affordable in markets with a prescriptive regulatory environment that attempted to control development; the three worst markets in the United States being Portland, Oregon with added land costs of $76,200, Washington-Baltimore with added land costs of $90,700 and San Diego with added land costs of $239,100.

    Here is an examination of the issue of land use over-regulation:

  6. philipat says:

    AEI, Heritage Foundation etc on the right, and all the others on the left. Doesn’t it get boring? And dishonest without disclaimers and disclosures of funding?

    The problem, of course, is that less than 1% of the US population has the interest or ability to follow such discourse in this truly excellent piece. The sound bites from the vested interests via these organisations are easier for the sheeple to assimilate.

    In a democracy, you get what you deserve.

  7. DeDude says:

    Amazing how far out in the sump you can end when you start with the conclusion (it’s because we helped poor and black people) and then go out to find facts that can be distorted or imagined into support for your conclusion. It is sort of like the Chicago School of economics; absurdity after absurdity if you try to follow their line of thought and models, but I am sure they find their pot of gold at the end. Rich people love to give money to those who say what the rich people want to hear (damn the truth) – it happens in white suburban churches every sunday.

  8. DeDude says:


    If the private sector needed government prodding or example to get going on something greedy and stupid (that they otherwise never would have done on their own), then we would not have had all those funny financial innovations. The GSE’s didn’t make mixed CDO+CDS squared and the squared again papers and no government policy suggested to give “born to die” unaffordable after a year or two mortgages to the poor. Those were all pure private sector inventions.

    What Gretchen and Joshua is doing is pure and simple pimping a specific narrative that has no data or even a logic model behind it. Yes, nobody can disprove the idea that this happened because the tooth fairy put pixie dust on everybody’s peanut butter sandwich, but give us something in support of that idea before its presented as possible. The private sector has never awaited or needed government example or prodding before they implemented something that could make a quick buck (even if it carried a huge long-term risk). If the private sector need government to induce them to do something then they will do that thing (after being forced) only up to the minimum extend they can get away with. In other words if they needed prodding to do something (lend to poor people who could not afford the loans) then they do not go twice as far with it as government ever asked them (lend to middle class people who could not afford the loans).

    Yes all of this could have been stopped if we had had some heavy-duty government regulations that banned giving out loans that people could not afford or understand (under reasonable assumptions). But giving the history of how we lost any and all regulation in the financial sector its is a little to rich to hear right wingers and banksters claim that this would not have happened if the government had not led these poor innocent blind bankster sheeps over the cliff.

  9. wannabe says:

    What the hell? Why was my comment deleted? Because I didn’t tie it back to Wallison? Ok, to tie it back to Wallison … he may be be wide of the mark but that doesn’t absolve central authority policy of it’s ultimate culpability for the financial crisis.

    At least Wallison’s actually shooting downrange.

  10. Lukey says:


    I guess I wonder why someone who is so anti-capitalism reads Barry’s blog. But I won’t argue that (big) bankers are greedy (and perhaps stupid). My point was that the private sector banks took what the government created (an environment where banks were supposed to lend to less credit worthy people) and perverted it to their benefit. No incentives (or directives) to lend to less than credit worthy borrowers, no private sector inventions to use that policy to shower themselves with riches. It was just another unintended consequence of (potentially misguided) regulation. When you need to keep adding to regulations to keep people from abusing the existing regulations, after a point, I think you get to where you have made the market so complicated that the only people willing to do business there are the crooks who are looking for ways to use the complexity against us.

    As for what Gretchen and Joshua are doing I would only suggest that Gretchen has a reputation as a straight shooter so, no, I don’t accept that she’s “pimping” anything (except maybe the truth).

  11. DeDude says:

    This is a beautiful take down of how some people massage definitions to make the data (“faux facts”) fit the already reach conclusion. Inventing their own “high risk” category they take the traditional “high risk” which would not support their conclusion and enlarge it with certain categories that admittedly have increased default rates – although far below that of traditional high-risk loans. However, other groups of loans that have an even higher increase in default rates are not included in these peoples expanded “high risk” definition, because doing so would be counterproductive and not support the already given conclusion. Cherry-picking based on what supports their conclusion (rather than legitimate expansion of “high” risk based on default rates), they finally manage to have a distorted definition that allow them to “support” their conclusion with data. In addition they mix up 30-day delinquency with 90-day delinquency data using a secret formula and freely use the same “high risk” term describing both data using traditional and their own new definition of the term, without mentioning the obvious apples to oranges problem.

    Some may claim that left-wingers do this too. But I would say that the right-wing think tanks has almost patented and made an art out of it. You can see this type of distortion almost on a daily basis on Fox, whereas MSNBC will have months between incidences.

  12. murrayv says:

    Very late in the day, but thought I’d send some more evidence of how those CRA loans caused the problem

    BTW, I’ve lost the reference, but an audit published about 2002 showed that banks writing CRA loans had the same level of delinquencies as banks noyt writing CTA loans. So after 25 years of no problems, suddenly the CRA forced the writing of all those bad loans. Wow.

  13. Francois says:

    The very presence of someone like Wallison on a financial crisis inquiry after such a momentous recession is proof positive of how FUBAR this country has become. This FCIC thingie was a testament to sleaze, political cowardice and rank hyper-partisanship, on top of being a cover-up agreed upon by all tribes of the so-called elites.

    Asshats like Wallison, Schlaes and others are a fact of life: Fuckwadism distribution in humankind follows the Bell curve, whether we like it or not. What distinguishes societies that have their shit together from those who don’t, is how thoroughly marginalized the asshats are.

    Here, in the US of A, in the Year 2011 after the birth of the Lord revered by the Christians, the asshats are not only visible within the mainstream, they get richly rewarded and praised by all the apostles of the General Asshatery.

  14. wannabe says:

    Hmmm. Ok, here’s the comment that disappeared:

    Don’t you think it’s laughable and sad that our so-called “affordable housing policies” did nothing more than drive the price of housing up and out of reach for lower income people?

    “These loans [(ARM and PLS)] are, of course, overwhelmingly attributable to the private sector. And without question they are the genesis of the U.S. housing and financial crises.”

    The actual genesis of the U.S. housing and financial crises was the fatal combination of ZIRP and corrupt and/or incompetent ratings agencies. ZIRP drove the demand on both sides, for housing and for MBS. US “affordable” housing policies merely created the financial instruments (MBS) needed by the private sector to get in on the game as well as proving that there was a buck to be made. No “affordable” housing policies, no structure to support MBS trading, no method available to offload their risk onto desperate marks with no other AAA-rated investment vehicles paying near as much.

    The actual genesis of the U.S. housing and financial crises is 100% rooted in government/federal reserve policy and ratings agency/regulator capture/failure. Private sector greed and short-sightedness is a given. Only when enabled and egged on by stupid government policy (to include allowing TBTF to exist in the first place) can the private sector threaten the entire global financial system.

  15. DeDude says:


    The way I see it the big banks bribed the politicians to create an environment where they could exploit richer or poorer people who had the ambition of living in a bigger house than they could afford (according to sensible standards of previous decades). There is no such thing as “less credit worthy people” nor did the CRA or the government suggest that banks should lend to people who could not pay back. Everybody is “worthy” of a house loan that does not exceed 250% of their annual income. Loans beyond that safety margin were given to all kinds of people from the poor to the higher middle class; in CRA and non-CRA neighborhoods. The banks quite frankly didn’t give a damn about government wanting them to lend to poor people (nobody had ever been punished for not doing so); and they certainly did not change their compliance with those soft rules at the time when they suddenly changed from decades of responsible lending (to poor and rich), to a mad race to the bottom.

    The thing that did change at the time banks changed from decades of responsible lending to rich and poor, and began their insanely irresponsible lending (to rich and poor), was the removal of some regulations and a complete lack of enforcing other. Barry has written a book about that whole debacle and I urge you to read it if you really want to understand what happened and why. The lack if regulation and oversight of the free market, allowed the crooks on Wall Street to change the lending model to one where they quickly harvested fat fees and then sold off all the risk (associated with loans of poor quality). Now they did not have to worry about the risk just the fees – and the worse the loans the bigger the fees. Because there were no responsible adults supervising this raiding of the candy store, banksters were allowed to harvest huge profits and never had to pay for the huge social costs that their activities imposed on individuals and society. Taking responsibility and paying for the clean up is apparently something we demand from little teenage criminals, not banksters wrecking the economy.

  16. Lukey says:


    Well, I’m no banker but I am a businessman and it would seem to me that folks in the two lower income quintiles would suffer a higher rate of income interruption, so I don’t think I buy that everyone is the same level of credit risk and it is only the amount they qualify to borrow that should be dependent on their earnings. But that’s just me. And I wish you were more specific about what regulation was removed that engendered this bad behavior. All I ever hear about is Glass Steagal but that (to the extent I am aware) had nothing to do with lending oversight. If there was some clear evidence of bankers “bribing” politicians to create an environment where they could make bad loans on big margins, I’m sure there is legislation you can point to, right? Again, I don’t dispute that there was criminal (or quasi criminal, since no one has gone to jail) behavior that took advantage of the laws and reaped profits from selling bad paper to supposedly sophisticated investors who should have known better. But I have yet to be convinced it would have occurred absent some very bad role models at Fannie and Freddie…

  17. [...] Freddie Phooey Over at The Big Picture, David Min has a terrific takedown of the claim that Fannie and Freddie caused the housing bubble. Every time you hear or read someone [...]

  18. theexpertisin says:

    I admit to being a practitioner in the rehab housing market in the period (1996-2008) leading up to the crisis. What I observed, and to a large degree participatedin, was the marketing of properties to “investors” (sic) with terms that gave them significant cash back at closing with little or no documentation or worse, fradulently constructed supporting documents.

    I was encouraged every step of the way by two banks and several mortgage companies to encourage buyers to perform in the above manner for two reasons: the “investors” were primarily indentified as a minority or disabled class that banks had to service in quota and that as soon as the bank processed the loan it was ditched in the public sector as part of a bundle of loans which I am led to believe contributed in no small way to the financial crisis.

    Although academic discourse may find a myriad of rationales to justify one position or another in this mess, my take is that booots on the ground knew full well that federal lending policies were politically corrupt and constituency-driven. Maybe that is one reason why I never felt one iota of guilt for being a participant in the process. After all, in the end it’s all politics.


    BR: Given the many factual errors and misinformation in your prior comments, I have grave doubts about the veracity of these comments.

    Readers are advised accordingly

  19. Boo-urns says:

    Lukey, it kinda seems like you are enamored of the idea that government MUST have messed up.

    DeDude is generally correct.

    Yes, in general, lower credit score/lower income borrowers default at higher rates. But those higher general default rates are anticipated by the lenders, and made up for in the form of higher capital held against them by the lenders and higher interest rates charged to the borrowers. What you are ignoring is that there was a MASSIVE change in the underwriting that occurred when Fannie/Freddie/CRA lending shifted over to PLS lending. You went from generally well constructed loans (other than LTVs and FICO scores) to 2/28 interest only, negative amortizing loans. Your claim that the private sector could not have done such bad lending without a Fannie/Freddie role model is ideological in nature, and not backed up by the facts. No one at Fannie/Freddie/CRA was doing these types of loans, and that fact is reflected in the default rates. Subprime was a purely private sector invention. Also, the ludicrousness of your claim that the private sector can’t misjudge risk is pretty soundly contradicted by every boom-bust cycle in the history of the world, from the tulip mania in the Netherlands to the Roaring 20s/Great Depression of the US.

    As far as what the legislation was that DeDude is referring to, it’s actually a combination of Gramm-Leach-Bliley and as importantly, regulatory neglect. The “shadow banking system” was essentially a form of banking that emerged outside of the traditional prudential risk regulation that governed banks and other depositories. At the lender level, it typically utilized “independent mortgage companies” that used warehouse lines of credit (essentially freestanding pools of money loaned by the sponsor, typically an investment bank) rather than deposits to finance their subprime and other lending. Because they didn’t use deposits, these IMCs were not regulated on their lending. They resold their loans to special purpose conduits (off balance sheet entities created by the banks and i-banks), which then packaged and securitized them (sometimes these securities themselves were repackaged into CDOs). Because these conduits were off-balance sheet, they were not regulated under the pre-Dodd-Frank era. The main check on this system was supposed to be the rating agencies, but they were rife with conflicts of interest, and moreover had serious issues rating the more complex products. The end result was that you had lots of paper being rated AAA that was definitely high risk (currently looking at over 50% loss rates). Investors bought this paper because they were seeking “safe” and “liquid” notes that they did not have to do due diligence on.

    It seems to me that your complaints with DeDude are ideologically grounded, and not based in the facts.

  20. Hugh says:

    The 9% national average is an awful figure, about twice the delinquency in other developed countries. Why is that? Partly I guess because non-recourse loans are almost unheard of outside the US – but there are probably other factors as well.

  21. Lukey says:

    Boo-urns, I’m just trying to understand the truth. And the idea that Fannie and Freddie (and their champions in Congress) and the Fed played zero role (or worse yet – were followers) in this strikes me as rather ideologically biased. As for that being a “ludicrous” position to take, it seems that Morganson’s and Rosner’s book suggests it’s not completely out in left field to think these regulations and GSE’s were part of the problem and not just innocent bystanders in all this. And, as for the “off balance sheet” nature of these holdings, I thought the rule in effect at the time was that if these vehicles were under the control of the bank, they needed to be on their books. So, if that rule wasn’t being enforced, why did we need Dodd Frank (with all it’s massive rules yet to be written)? Just enforce the accounting rule on off-balance sheet transactions and/or send some people to jail for flouting it.

    And if no one at Fannie and Freddie was doing these kinds of loans, why have they soaked up $150 billion (plus) of taxpayer money to stay solvent? Again, I’m not arguing that commercial and investment bankers weren’t acting criminally – I’m just not convinced they would have come up with all this crazy sub-prime lending if the government hadn’t tried to create incentives to make loans to less credit worthy borrowers. I know correlation doesn’t equal causation, but I do find it hard to ignore that these bad banking practices grew along side government efforts to increase lending to less credit worthy people. It looks to me like just another unintended consequence of well meaning but misguided government interference in the market.

  22. wannabe says:

    “These [(ARM and PLS)] loans are, of course, overwhelmingly attributable to the private sector. And without question they are the genesis of the U.S. housing and financial crises.”

    IMO, the actual genesis of the U.S. housing and financial crises was the fatal combination of ZIRP and corrupt and/or incompetent ratings agencies. ZIRP drove the demand on both sides, for housing and for MBS. US “affordable” housing policies merely created the financial instruments (MBS) and infrastructure needed by the private sector to get in on the game and also proved that there was money to be made. Without “affordable” housing policies and the MBS markets they built there would have been no infrastructure to support the private sector’s offloading of risk onto desperate and credulous marks (I mean sophisticated institutional investors) who couldn’t find other AAA-rated investment vehicles yielding as much (which in and of itself should have been a warning).

    IMO, the actual genesis of the U.S. housing and financial crises is 100% rooted in government/federal reserve policy and ratings agency/regulator failure/capture. Private sector greed and short-sightedness is a given. Only when enabled and encouraged by government policy (to include allowing TBTF to exist in the first place – more regulatory failure) can the private sector threaten the entire global financial system.

    Wallison may be be wide of the mark and idealogically-driven but that doesn’t absolve central planner’s policies of their ultimate culpability in the financial crisis. Witch-hunting the crooked banksters who bought/took advantage of our hapless lawsellers amounts to blaming a scorpian for being a scorpian and stinging you. It misses the point that our law sellers have sold us all down the river and their “affordable” housing policy is just another politically-motivated sweetheart special deal for their cronies that accomplished nothing other than helping to drive the cost of housing out of reach for lower income people until the bubble burst.

  23. Truth Will Out says:

    Wallison and everyone else, it seems, wants to find a scapegoat, and the tendency is to seize on the favorite villain of their ideologies. I have seen the enemy, however, and it is us. Background – from 2003 to 2009, I managed the internal audit and risk management functions of one of the country’s top mortgage lenders. One of the risk indicators I tracked was non-owner occupied (NOO) mortgage rates. These loans are particularly risky as the borrowers have fewer disincentives to walk from the loans. I not only tracked my employer’s rates, but my employer was also a major ware-house lender for many non-bank loan originators, and I had access to their loan data as well. What I found was a steady increase in non-owner participation in the mortgage market. NOO borrowers went from under 20% of the market when I first started tracking it in 2003 to well over 50% from some of the non-bank lenders by 2007. All lenders were seeing major increases in NOO mortgages. A consistent driver of bubble conditions is the involvement by the general public in the investment frenzy, and these NOO loans are a classic indicator of this involvment. Some of my own friends and neighbors mentioned schemes to me where they were planning to borrow on their own homes to invest in real estate. I discouraged one and all, but I know some of them got involved.

    So, anyway, the enemy is us, the general public in our greedy rush to jump on the latest bubble bandwagon. We were aided and abetted by greedy lenders, and many innocent victims were involved, but the rush by the general public to invest in real estate was the true villain. This is pretty much the same villain that caused the tech bubble a decade ago. Pinto and Wallison might look at NOO loans as one of their high risk groupings, but of course they are not seeking the truth. They are only seeking to vilify their favorite ideological villain.

  24. AYC says:

    Lukey is using a shameless bit of anti-govt. sleight of hand. First, scream bloody murder at any govt. “intervention” with the free market; then, when deregulation (inevitably) allows the market to go astray, blame the govt. for NOT effectively regulating the market. If that seems inconsistent to you, remember, you have to start from the premise that “Govt. is always the problem.”

  25. Lukey says:

    When I hear people advocating the use of more regulation whenever existing regulation isn’t enforced or working as intended, I have to ask – what makes you think, if the existing regulation isn’t enforced or particularly effective, that the new regulation will be any more enforced or effective? As I said above, I think at some point all the regulation becomes such a hassle that the only ones willing to deal with it are the crooks who are looking for a way to use it to their advantage.

  26. AYC says:

    This wasn’t just a matter of existing regulations not being enforced; deregulation pushed by conservatives (specifically, the repeal of Glass-Steagall through the Gramm–Leach–Bliley Act in 1999) allowed financial misdeeds that previously would have been illegal. Here’s what wiki says on the matter:

    “The repeal enabled commercial lenders such as Citigroup, which was in 1999 the largest U.S. bank by assets, to underwrite and trade instruments such as mortgage-backed securities and collateralized debt obligations and establish so-called structured investment vehicles, or SIVs, that bought those securities.[22] Elizabeth Warren,[23] author and one of the five outside experts who constitute the Congressional Oversight Panel of the Troubled Asset Relief Program, has said that the repeal of this act contributed to the Global financial crisis of 2008–2009.[24][25] Others have debated what role the repeal may have played in the financial crisis.[8][26][27][28][29]

    The year before the repeal, sub-prime loans were just five percent of all mortgage lending.[citation needed] By the time the credit crisis peaked in 2008, they were approaching 30 percent.”

  27. GoldieWilson says:

    David, please respond to Barron’s claim that you are using FICO scores below 660 in your definition of “Prime”, via the MBA data.

    If so, it would be highly dishonest to use the graph titled “The real data on delinquent mortgages” as proof that prime mortgages have a similar delinquency rate to those with a FICO score from 620-659. As a former member of the Mortgage Banker’s Association, I fear that they would not hesitate to consider a loan in this category “Prime”.

    Pinto has stated that if you back these loans out of the data group, the real number is 3.4%. That is quite a difference. I am interested to hear your response.



    David Min:

    There’s a whole section in the actual paper addressing the Epstein/Pinto claim, I encourage you to actually read it before criticizing it or making accusations of dishonesty.

    To paraphrase for you:

    1) the MBA does not record its data according to Pinto’s loan categories, and has stated that it cannot itself “back out” Pinto’s “high risk” loans from its prime conforming category, and so Pinto would be making some pretty large assumptions to get to that 3.4% figure. He has not described those assumptions, so I have no way of knowing whether his methodology is sound, but given that the serious delinquency rate for prime conforming FIXED-RATE mortgages (which are dramatically outperforming prime ARMs) is 5.98%, Pinto’s finding of a 3.4% delinquency rate seems quite questionable.
    2) As I state in the text above, “The point of this comparison was not, as Epstein seems to assume, to imply that LTV>90 and FICO 620-659 mortgages are the safest loans possible, but simply to point out that it defies all logic to call these loan categories “high risk.” As such, it does not matter whether Pinto can or cannot back out a safer version of “prime conforming” than the MBA. Rather, the important question is whether and to what extent these loan categories can justifiably be called “high risk.” Looking at this from a different perspective, Pinto’s newly invented “high-risk” loans have serious delinquency rates that are essentially identical to the national average of 9.11 percent (again from the MBA’s National Delinquency Survey for Q2 2010)… It is difficult to understand how these loans are “high risk” unless one claims that all U.S. mortgages are “high risk,” in which case one would expect to see a much higher national delinquency rate, particularly given the historically high housing market price declines and unemployment levels we have experienced.”

  28. [...] (pdf), which has some fairly shocking evidence about Peter Wallison, who has been pushing the clearly false line that Fannie and Freddie were actually leading the charge into high-risk lending.As Konczal says, [...]

  29. [...] which has some fairly shocking evidence about Peter Wallison, who has been pushing the clearly false line that Fannie and Freddie were actually leading the charge into high-risk [...]

  30. [...] makes an interesting point, one I’ve actually argued, in his latest retort.  That is, this wasn’t exclusively a housing crisis/bubble.  Other sectors, like commercial [...]

  31. [...] of Capitalism who would never give the USA one giant shaft and then be bailed out by tax payers. Wallison: Still Wrong About Genesis of Housing Crisis Most subprime loans not made by Fannie or [...]

  32. [...] of Capitalism who would never give the USA one giant shaft and then be bailed out by tax payers. Wallison: Still Wrong About Genesis of Housing Crisis Most subprime loans not made by Fannie or [...]

  33. [...] some of the “not much” case (piling on here); see also Brad DeLong, Paul Krugman, David Min, and others.  He wonders what the non-spinners think and I will tell him what I [...]

  34. [...] makes an interesting point, one I’ve actually argued, in his latest retort.  That is, this wasn’t exclusively a housing crisis/bubble.  Other sectors, like commercial [...]

  35. redline21 says:

    David Min criticizes the analysis of Peter Wallison and Ed Pinto of the role played by Freddie Mac and Fannie Mae in the housing bubble. (Pointer from Mark Thoma.)

    The centerpiece of Min’s critique is a chart that shows the serious delinquency rate for four categories of loans:

    Subprime 28.3 %
    Freddie 620-650 credit score: 10.04
    Freddie over 90% loan-to-value ratio: 8.45%
    Conforming: 6.8 %

    Min’s point is that the middle two categories, which Pinto classifies as high risk, seem to perform about as well as conforming loans. Therefore, it is wrong to classify them as high risk.

    I am not sure what to make of this. The 6.8 percent serious delinquency rate on the conforming loans is horrible. The way Min breaks down the loan categories, every category is high risk.

    If I were doing this work, I would try to find categories of loans for which the serious delinquency rate is under 1 percent. Now, they might be loans with loan-to-value ratios under 70 and FICO scores over 720, and only loans to purchase an owner-occupied home or refinance it to reduce the interest rate (in other words, no second mortgages, investment properties, or cash-out refis). I have no idea. But when I was with Freddie Mac in the late 1980′s and early 1990′s, we would not have said we were happy with a portfolio of loans with a serious delinquency rate anywhere near 6.8 percent, under any scenario.


    BR: Let me translate Min’s critique into English:

    In order to blame GSEs, Pinto fabricated a category of “subprime” that wasn’t. He ignores actual data about what loans went sour, in order to maintain his series of fictions.

    Remember, Pinto is the eejit who first said the crisis was Acorn’s fault, than it was the CRAs fault, now its Fannie & Freddies.

  36. [...] Conservatives are still trying to pin the housing bubble on government rather than Wall Street, and they’re still wrong. [...]

  37. [...] “study” to claim Fannie Mae and Freddie Mac are to blame for the financial meltdown. Here’s the thorough deconstruction of the false argument by David Min on the blog The Big [...]