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Peter J. Wallison 499

By 2004, Fannie and Freddie were suffi ciently in need of subprime loans
to meet the AH goals that their CEOs, as the following account shows, went to a
meeting of mortgage bankers to ask for more subprime loan production:
Th e top executives of Freddie Mac and Fannie Mae [Richard Syron and Franklin
Raines] made no bones about their interest in buying loans made to borrowers
formerly considered the province of nonprime and other niche lenders. …Fannie Mae
Chairman and [CEO] Franklin Raines told mortgage bankers in San Francisco that
his company’s lender-customers ‘need to learn the best from the subprime market
and bring the best from the prime market into [the subprime market].’ He off ered
praise for nonprime lenders that, he said, ‘are some of the best marketers in fi nancial
services.’… We have to push products and opportunities to people who have lesser credit
99
quality,” he said. [emphasis supplied]
Accordingly, by 2004, when HUD put new and tougher AH goals into eff ect,
Fannie and Freddie were using every available resource to meet the goals, including
subprime loans, Alt-A loans and the purchase of PMBS. Some observers, including
the Commission’s majority, have claimed that the GSEs bought NTM loans and
PMBS for profi t—that these instruments did not assist Fannie and Freddie in
meeting the AH goals and therefore must have been acquired because they were
profi table. However, the statement by Adolfo Marzol reported above, and the data in
Table 5 furnished to the Commission by Fannie Mae shows that all three categories
of NTMs—subprime loans (i.e., loans to borrowers with FICO scores less than 660),
Alt-A loans and PMBS (called PLS for “Private Label Securities” in the table)—
fulfi lled the AH goals or subgoals for the years and in the percentages shown below.
(Bolded numbers exceeded the applicable goal.) Table 5 also shows, signifi cantly,
that the gradual increase in Fannie’s purchases of these NTMs closely followed the
gradual increase in the goals between 1996 and 2008.

99 Neil Morse, “Looking for New Customers,” Mortgage Banking, December 1, 2004. It may be signifi cant
that the chairman of Freddie Mac at the time, Leland Brendsel, did not attend the 2000 press conference
or pledge support for HUD’s new goals. Raines must have forgotten his 1999 pledge to Secretary Cuomo
and his speech to the mortgage bankers when he wrote in a letter to Th e Wall Street Journal on August
3, 2010: “Th e facts about the fi nancial collapse of Fannie and Freddie are pretty clear and a matter of
public record. Th e company managers, their regulator and the Treasury have all said that the losses which
crippled the companies were caused by the purchase of loans with lower credit standards between 2005
and 2007. Th e companies explicitly changed their credit standards in order to regain market share aft er
Wall Street began to defi ne market credit standards in 2004.”