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456 Dissenting Statement

under CRA—to reach deeper into subprime lending in order to fi nd the mortgages
they needed to comply with their own government requirements. Th is was also true
of the mortgage banks—the largest of which was Countrywide—that were bound to
promote aff ordable housing through HUD’s Best Practices Initiative.
By 2008, the result of these government programs was an unprecedented
number of subprime and other high risk mortgages in the U.S. fi nancial system. Table
1 shows which agencies or fi rms were holding the credit risk of these mortgages-
-or had distributed it to investors through mortgage-backed securities (MBS)--
immediately before the fi nancial crisis began. As Table 1 makes clear, government
agencies, or private institutions acting under government direction, either held or
had guaranteed 19.2 million of the NTM loans that were outstanding at this point.
By contrast, about 7.8 million NTMs had been distributed to investors through the
16
issuance of private mortgage-backed securities, or PMBS, primarily by private
issuers such as Countrywide and other subprime lenders.
Th e fact that the credit risk of two-thirds of all the NTMs in the fi nancial
system was held by the government or by entities acting under government control
demonstrates the central role of the government’s policies in the development of
the 1997-2007 housing bubble, the mortgage meltdown that occurred when the
bubble defl ated, and the fi nancial crisis and recession that ensued. Similarly, the
fact that only 7.8 million NTMs were held by investors and fi nancial institutions in
the form of PMBS shows that this group of NTMs were less important as a cause of
the fi nancial crisis than the government’s role. Th e Commission majority’s report
focuses almost entirely on the 7.8 million PMBS, and is thus an example of its
determination to ignore the government’s role in the fi nancial crisis.
Table 1. 17

Entity No. of Subprime Unpaid Principal Amount
and Alt-A Loans
Fannie Mae and Freddie Mac 12 million $1.8 trillion
FHA and other Federal* 5 million $0.6 trillion
CRA and HUD Programs 2.2 million $0.3 trillion
Total Federal Government 19.2 million $2.7 trillion
Other (including subprime and 7.8 million $1.9 trillion
Alt-A PMBS issued by Countrywide,
Wall Street and others)
Total 27 million $4.6 trillion
*Includes Veterans Administration, Federal Home Loan Banks and others.
To be sure, the government’s eff orts to increase home ownership through the
AH goals succeeded. Home ownership rates in the U.S. increased from approximately
18
64 percent in 1994 (where it had been for 30 years) to over 69 percent in 2004.
Almost everyone in and out of government was pleased with this—a long term goal
16 In the process known as securitization, securities backed by a pool of mortgages (mortgage-
backed securities, or MBS) and issued by private sector fi rms were known as private label securities
(distinguishing them from securities issued by the GSEs or Ginnie Mae) or private MBS (PMBS).
17 See Edward Pinto’s analysis in Exhibit 2 to the Triggers Memo, April 21, 2010, p.4. http://www.aei.org/
docLib/Pinto-Sizing-Total-Federal-Contributions.pdf.
18 Census Bureau data.