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452 Dissenting Statement

the past to meet other fi nancial obligations. Before changes in government policy
in the early 1990s, most borrowers with FICO scores below 660 did not qualify as
prime borrowers and had diffi culty obtaining mortgage credit other than through
the Federal Housing Administration (FHA), the government’s original subprime
lender, or through a relatively small number of specialized subprime lenders.
An Alt-A mortgage is one that is defi cient by its terms. It may have an
adjustable rate, lack documentation about the borrower, require payment of interest
only, or be made to an investor in rental housing, not a prospective homeowner.
Another key defi ciency in many Alt-A mortgages is a high loan-to-value ratio—that
is, a low downpayment. A low downpayment for a home may signify the borrower’s
lack of fi nancial resources, and this lack of “skin in the game” oft en means a reduced
borrower commitment to the home. Until they became subject to HUD’s aff ordable
housing requirements, beginning in the early 1990s, Fannie and Freddie seldom
acquired loans with these defi ciencies.
Given the likelihood that large numbers of subprime and Alt-A mortgages
would default once the housing bubble began to defl ate in mid- 2007—with
devastating eff ects for the U.S. economy and fi nancial system—the key question
for the FCIC was to determine why, beginning in the early 1990s, mortgage
underwriting standards began to deteriorate so signifi cantly that it was possible to
create 27 million subprime and Alt-A mortgages. Th e Commission never made a
serious study of this question, although understanding why and how this happened
must be viewed as one of the central questions of the fi nancial crisis.
From the beginning, the Commission’s investigation was limited to validating
the standard narrative about the fi nancial crisis—that it was caused by deregulation
or lack of regulation, weak risk management, predatory lending, unregulated
derivatives and greed on Wall Street. Other hypotheses were either never considered
or were treated only superfi cially. In criticizing the Commission, this statement is
not intended to criticize the staff , which worked diligently and eff ectively under
diffi cult circumstances, and did extraordinarily fi ne work in the limited areas they
were directed to cover. Th e Commission’s failures were failures of management.

1. Government Policies Resulted in an
Unprecedented Number of Risky Mortgages
Th ree specifi c government programs were primarily responsible for the
growth of subprime and Alt-A mortgages in the U.S. economy between 1992 and
2008, and for the decline in mortgage underwriting standards that ensued.
Th e GSEs’ Aff ordable Housing Mission. Th e fact that high risk mortgages
formed almost half of all U.S. mortgages by the middle of 2007 was not a chance
event, nor did it just happen that banks and other mortgage originators decided on
their own to off er easy credit terms to potential homebuyers beginning in the 1990s.
In 1992, Congress enacted Title XIII of the Housing and Community
6
Development Act of 1992 ( the GSE Act), legislation intended to give low and

6 Public Law 102-550, 106 Stat. 3672, H.R. 5334, enacted October 28, 1992.