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FINANCIAL CRISIS INQUIRY COMMISSION REPORT
originated in the market, the new goals were closer to where the market really was.
But, as Mudd noted, “When became [] ultimately, then you have to work
harder, pay more attention, and create a preference for those loans.” Targeted goals
loans (loans made specifically to meet the targets), while always a small share of the
GSEs’ purchases, rose in importance.
Mudd testified that by , when the housing market was in turmoil, Fannie
Mae could no longer balance its obligations to shareholders with its affordable hous-
ing goals and other mission-related demands: “There may have been no way to sat-
isfy of the myriad demands for Fannie Mae to support all manner of projects
[or] housing goals which were set above the origination levels in the marketplace.”
As the combined size of the GSEs rose steadily from . trillion in to . tril-
lion in , the number of mortgage borrowers that the GSEs needed to serve in
order to fulfill the affordable housing goals also rose. By , Fannie and Freddie
were stretching to meet the higher goals, according to a number of GSE executives,
OFHEO officials, and market observers.
Yet all but two of the dozens of current and former Fannie Mae employees and
regulators interviewed on the subject told the FCIC that reaching the goals was not
the primary driver of the GSEs’ purchases of riskier mortgages and of subprime and
Alt-A non-GSE mortgage–backed securities. Executives from Fannie, including
Mudd, pointed to a “mix” of reasons for the purchases, such as reversing the declines
in market share, responding to originators’ demands, and responding to shareholder
demands to increase market share and profits, in addition to fulfilling the mission of
meeting affordable housing goals and providing liquidity to the market.
For example, Levin told the FCIC that while Fannie, to meet its housing goals, did
purchase some subprime mortgages and mortgage-backed securities it would other-
wise have passed up, Fannie was driven to “meet the market” and to reverse declining
market share. On the other hand, he said that most Alt-A loans were high-income-
oriented and would not have counted toward the goals, so those were purchased
solely to increase profits. Similarly, Lund told the FCIC that the desire for market
share was the main driver behind Fannie’s strategy in . Housing goals had been a
factor, but not the primary one. And Dallavecchia likewise told the FCIC that Fan-
nie increased its purchases of Alt-A loans to regain relevance in the market and meet
customer needs.
Hempstead, Fannie’s principal contact with Countrywide, told the FCIC that
while housing goals were one reason for Fannie’s strategy, the main reason Fannie en-
tered the riskier mortgage market was that those were the types of loans being origi-
nated in the primary market. If Fannie wanted to continue purchasing large
quantities of loans, the company would need to buy riskier loans. Kenneth Bacon,
Fannie’s executive vice president of multifamily lending, said much the same thing,
and added that shareholders also wanted to see market share and returns rise. For-
mer Fannie chairman Stephen Ashley told the FCIC that the change in strategy in
and was owed to a “mix of reasons,” including the desire to regain market
share and the need to respond to pressures from originators as well as to pressures
from real estate industry advocates to be more engaged in the marketplace. 
