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490 Dissenting Statement

echoing Chairman Bernanke, seems to believe that the impetus was competition
among the banks, irresponsibility among originators, and the desire for profi t. Th e
majority’s report off ers no other explanation.
However, there is no diffi culty fi nding the source of the reductions in mortgage
underwriting standards for Fannie and Freddie, or for the originators for whom
they were the buyers. HUD made clear in numerous statements that its policy—in
order to make credit available to low-income borrowers—was specifi cally intended
to reduce underwriting standards. Th e GSE Act enabled HUD to put Fannie and
Freddie into competition with FHA, and vice versa, creating what became a contest
to lower mortgage standards. As the Fannie Mae Foundation noted in a 2000 report,
“FHA loans constituted the largest share of Countrywide’s [subprime lending]
activity, until Fannie Mae and Freddie Mac began accepting loans with higher LTVs
[loan-to-value ratios] and greater underwriting fl exibilities.” 70
Under the GSE Act, the HUD Secretary was authorized to establish aff ordable
housing goals for Fannie and Freddie. Congress required that these goals include a
low and moderate income goal and a special aff ordable goal (discussed below), both
of which could be adjusted in the future. Among the factors the secretary was to
consider in establishing the goals were national housing needs and “the ability of
the enterprises [Fannie and Freddie] to lead the industry in making mortgage credit
available for low-and moderate-income families.” Th e Act also established an interim
aff ordable housing goal of 30 percent for the two-year period beginning January 1,
1993. Under this requirement, 30 percent of the GSEs’ mortgage purchases had to
be aff ordable housing loans, defi ned as loans to borrowers at or below the AMI. 71
Further, the Act established a “special aff ordable” goal to meet the
“unaddressed needs of, and aff ordable to, low-income families in low-income
areas and very low-income families.” Th is category was defi ned as follows: “(i) 45
percent shall be mortgages of low-income families who live in census tracts in which
the median income does not exceed 80 percent of the area median income; and
(ii) 55 percent shall be mortgages of very low income families,” which were later
72
defi ned as 60 percent of AMI. Although the GSE Act initially required that the
GSEs spend on special aff ordable mortgages “not less than 1 percent of the dollar
amount of the mortgage purchases by the [GSEs] for the previous year,” HUD raised
this requirement substantially in later years. Ultimately, it became the most diffi cult
aff ordable housing AH burden for Fannie and Freddie to meet.
Finally, the GSEs were directed to: “(A) assist primary lenders to make
housing credit available in areas with low-income and minority families; and (B)
assist insured depository institutions to meet their obligations under the Community
73
Reinvestment Act of 1977.” Th ere will be more on the CRA and its eff ect on the
quality of mortgages later in this section.
Congress also made clear in the act that its intention was to call into question
the high quality underwriting guidelines of the time. It did so by directing Fannie
and Freddie to “examine—

70 Fannie Mae Foundation, “Making New Markets: Case Study of Countrywide Home Loans,” 2000,
http://content.knowledgeplex.org/kp2/programs/pdf/rep_newmortmkts_countrywide.pdf.
71 GSE Act, Section 1332.
72 Id., Section 1333.
73 Id., Section 1335.