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xxvi FINANCIAL CRISIS INQUIRY COMMISSION REPORT

estate assets in the United States were prerequisites for the creation of a credit bubble.
Those conditions created increased risks, which should have been recognized by
market participants, policy makers, and regulators. However, it is the Commission’s
conclusion that excess liquidity did not need to cause a crisis. It was the failures out-
lined above—including the failure to effectively rein in excesses in the mortgage and
financial markets—that were the principal causes of this crisis. Indeed, the availabil-
ity of well-priced capital—both foreign and domestic—is an opportunity for eco-
nomic expansion and growth if encouraged to flow in productive directions.
Second, we examined the role of the GSEs, with Fannie Mae serving as the Com-
mission’s case study in this area. These government-sponsored enterprises had a
deeply flawed business model as publicly traded corporations with the implicit back-
ing of and subsidies from the federal government and with a public mission. Their
 trillion mortgage exposure and market position were significant. In  and
, they decided to ramp up their purchase and guarantee of risky mortgages, just
as the housing market was peaking. They used their political power for decades to
ward off effective regulation and oversight—spending  million on lobbying from
 to . They suffered from many of the same failures of corporate governance
and risk management as the Commission discovered in other financial firms.
Through the third quarter of , the Treasury Department had provided  bil-
lion in financial support to keep them afloat.
We conclude that these two entities contributed to the crisis, but were not a pri-
mary cause. Importantly, GSE mortgage securities essentially maintained their value
throughout the crisis and did not contribute to the significant financial firm losses
that were central to the financial crisis.
The GSEs participated in the expansion of subprime and other risky mortgages,
but they followed rather than led Wall Street and other lenders in the rush for fool’s
gold. They purchased the highest rated non-GSE mortgage-backed securities and
their participation in this market added helium to the housing balloon, but their pur-
chases never represented a majority of the market. Those purchases represented .
of non-GSE subprime mortgage-backed securities in , with the share rising to
 in , and falling back to  by . They relaxed their underwriting stan-
dards to purchase or guarantee riskier loans and related securities in order to meet
stock market analysts’ and investors’ expectations for growth, to regain market share,
and to ensure generous compensation for their executives and employees—justifying
their activities on the broad and sustained public policy support for homeownership.
The Commission also probed the performance of the loans purchased or guaran-
teed by Fannie and Freddie. While they generated substantial losses, delinquency
rates for GSE loans were substantially lower than loans securitized by other financial
firms. For example, data compiled by the Commission for a subset of borrowers with
similar credit scores—scores below —show that by the end of , GSE mort-
gages were far less likely to be seriously delinquent than were non-GSE securitized
mortgages: . versus ..
We also studied at length how the Department of Housing and Urban Develop-
ment’s (HUD’s) affordable housing goals for the GSEs affected their investment in