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of these mortgages, about 19 million. Th e table also identifi es the private sector as
the securitizer of the remaining one-third, about 7.8 million loans. In other words,
if we are looking for the buyer of the NTMs that were being created by originators
at the local level, the government’s policies would seem to be the most likely culprit.
Th e private sector certainly played a role, but it was a subordinate one. Moreover,
what the private sector did was respond to demand—that’s what the private sector
does—but the government’s role involved deliberate policy, an entirely diff erent
matter. Of its own volition, it created a demand that would not otherwise have been
there.
Th e deterioration in mortgage standards did not occur—contrary to the
Commission majority’s apparent view—because banks and other originators
suddenly started to make defi cient loans; nor was it because of insuffi cient regulation
at the originator level. Th e record shows unambiguously that government regulations
made FHA, Fannie and Freddie, mortgage banks and insured banks of all kinds into
competing buyers. All of them needed NTMs in order to meet various government
requirements. Fannie and Freddie were subject to increasingly stringent aff ordable
housing requirements; FHA was tasked with insuring loans to low-income borrowers
that would not be made unless insured; banks and S&Ls were required by CRA to
show that they were also making loans to the same group of borrowers; mortgage
bankers who signed up for the HUD Best Practices Initiative and the Clinton
administration’s National Homeownership Strategy were required to make the same
kind of loans. Profi t had nothing to do with the motivations of these fi rms; they
were responding to government direction. Under these circumstances, it should
be no surprise that underwriting standards declined, as all of these organizations
scrambled to acquire the same low quality mortgages.

1. HUD’s Central Role

In testimony before the House Financial Services Committee on April 14,
2010, Shaun Donovan, Secretary of Housing and Urban Development, said in
reference to the GSEs: “Seeing their market share decline [between 2004 and 2006]
as a result of [a] change of demand, the GSEs made the decision to widen their focus
from safer prime loans and begin chasing the non-prime market, loosening long-
standing underwriting and risk management standards along the way. Th is would
be a fateful decision that not only proved disastrous for the companies themselves
–but ultimately also for the American taxpayer.”
Earlier, in a “Report to Congress on the Root Causes of the Foreclosure
Crisis,” in January 2010, HUD declared “Th e serious fi nancial troubles of the GSEs
that led to their being placed into conservatorship by the Federal government
provides strong testament to the fact that the GSEs were, indeed, overexposed to
unduly risky mortgage investments. However, the evidence suggests that the GSEs’
decisions to purchase or guarantee non-prime loans was motivated much more by
eff orts to chase market share and profi ts than by the need to satisfy federal regulators.”
61
[emphasis supplied]
Finger-pointing in Washington is endemic when problems occur, and
61 Report to Congress on the Root Causes of the Foreclosure Crisis , January 2010, p.xii, http://www.
huduser.org/portal/publications/hsgfi n/foreclosure_09.html.