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Peter J. Wallison 495

In 1995, HUD also ruled that Fannie and Freddie could get AH credit for
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buying PMBS that were backed by loans to low-income borrowers. Th is provided
an opportunity for subprime lenders to create pools of subprime mortgages that were
likely to be AH goals-rich. Th ese were then sold through Wall Street underwriters
to Fannie and Freddie, which became the largest buyers of these high risk PMBS
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between 2002 and 2005. Th ese PMBS pools were not bought for profi t. As Adolfo
Marzol, Fannie’s Chief Credit Offi cer, noted to Fannie CEO Dan Mudd in a 2005
memorandum, “large 2004 private label [PMBS] volumes were necessary to achieve
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challenging minority lending goals and housing goals.” Th ere is a strong possibility
that by creating a market for PMBS backed by NTMs Fannie and Freddie enabled
Wall Street—which had previously focused on securitizing prime jumbo loans—to
get its start in developing an underwriting business in PMBS based on NTMs.
HUD pursued these policies throughout the balance of the Clinton
administration and into the administration of George W. Bush. Ultimately, they
would lead to the mortgage meltdown in 2007, as vast numbers of mortgages with
low or no downpayments and other non-traditional features suff used the fi nancial
system. But in June, 1995, the dangers in HUD’s policies were not recognized. As
President Clinton said in a 1995 speech, “Our homeownership strategy will not cost
the taxpayers one extra red cent. It will not require legislation. It will not add more
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federal programs or grow the Federal bureaucracy.” Th e lesson here is that the
government can accomplish a lot of its goals without growing, as long as it has the
power to enlist the private sector. Th at does not mean, however, as we have all now
learned, that the taxpayers will not ultimately be faced with the costs.
Th e next signifi cant move in the AH goals was made under HUD Secretary
Andrew Cuomo, and it was a major step. On July 29, 1999, HUD issued a press
release with the heading “Cuomo Announces Action to Provide $2.4 trillion in
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Mortgages for Aff ordable Housing for 28.1 Million Families.” Th e release began:
“Housing and Urban Development Secretary Andrew Cuomo today announced a
policy to require the nation’s two largest housing fi nance companies to buy $2.4
trillion in mortgages over the next 10 years to provide aff ordable housing for about
28.1 million low-and moderate-income families.” Th is was followed by a quote from
President Clinton to emphasize the importance of the initiative: “During the last six
and a half years, my Administration has put tremendous emphasis on promoting
homeownership and making housing more aff ordable for all Americans…Today,
the homeownership rate is at an all-time high, with more than 66 percent of all
American families owning their homes. Today, we take another signifi cant step.”
Th e release then pointed out that the AH goals would be substantially
raised and that “[u]nder the higher goals, Fannie Mae and Freddie Mac will buy an
additional $488.3 billion in mortgages that will be used to provide aff ordable housing
for 7 million more low-and moderate-income families over the next 10 years. Th ose
new mortgages and families are over and above the $1.9 trillion in mortgages for
84 http://www.washingtonpost.com/wp-dyn/content/article/2008/06/09/AR2008060902626.html.
85 See Footnote 32.
86 Fannie Mae, internal memo, Adolfo Marzol to Dan Mudd, “RE: Private Label Securities,” March 2,
2005.
87 William J. Clinton, Remarks on the National Homeownership Strategy, June 5, 1995.
88 HUD Press Release, HUD No. 99-131, July 29, 1999.