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 DISSENTING STATEMENT

mortgages that would probably never be repaid. Federally regulated bank and
thrift lenders, such as Countrywide, Wachovia, and Washington Mutual, had
lenient regulatory oversight on mortgage origination as well.
• Mortgage brokers were paid for new originations but did not ultimately bear
the losses on poorly performing mortgages. Mortgage brokers therefore had an
incentive to ignore negative information about borrowers.
• Many borrowers neither understood the terms of their mortgage nor appreci-
ated the risk that home values could fall significantly, while others borrowed
too much and bought bigger houses than they could ever reasonably expect to
afford.
• All these factors were supplemented by government policies, many of which
had been in effect for decades, that subsidized homeownership but created hid-
den costs to taxpayers and the economy. Elected officials of both parties pushed
housing subsidies too far.

The Commission heard convincing testimony of serious mortgage fraud prob-
lems. Excruciating anecdotes showed that mortgage fraud increased substantially
during the housing bubble. There is no question that this fraud did tremendous
harm. But while that fraud is infuriating and may have been significant in certain ar-
eas (like Florida), the Commission was unable to measure the impact of fraud rela-
tive to the overall housing bubble.
The explosion of legal but questionable lending is an easier explanation for the
creation of so many bad mortgages. Lending standards were lax enough that lenders
could remain within the law but still generate huge volumes of bad mortgages. It is
likely that the housing bubble and the crisis would have occurred even if there had
been no mortgage fraud. We therefore classify mortgage fraud not as an essential
cause of the crisis but as a contributing factor and a deplorable effect of the bubble.
Even if the number of fraudulent loans was not substantial enough to have a large im-
pact on the bubble, the increase in fraudulent activity should have been a leading in-
dicator of deeper structural problems in the market.

Conclusions:

• Beginning in the late s and accelerating in the s, there was a large and
sustained housing bubble in the United States. The bubble was characterized
both by national increases in house prices well above the historical trend and by
more rapid regional boom-and-bust cycles in California, Nevada, Arizona, and
Florida.
• There was also a contemporaneous mortgage bubble, caused primarily by the
broader credit bubble.
• The causes of the housing bubble are still poorly understood. Explanations in-
clude population growth, land use restrictions, bubble psychology, and easy fi-
nancing.
• The causes of the mortgage bubble and its relationship to the housing bubble