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510 Dissenting Statement

Table 10. GSEs’ Success in Meeting Aff ordable Housing Goals, 1996-2007
114
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Low & Mod 40% 42% 42% 42% 42% 50% 50% 50% 50% 52% 53% 55% 56%
Housing Goals
Fannie Actual 45% 45% 44% 46% 50% 51% 52% 52% 53% 55% 57% 56% 54%
Freddie Actual 41% 43% 43% 46% 50% 53% 50% 51% 52% 54% 56% 56% 51%
Special 12% 14% 14% 14% 14% 20% 20% 20% 20% 22% 23% 25% 27%
Aff ordable Goal
Fannie Actual 15% 17% 15% 18% 19% 22% 21% 21% 24% 24% 28% 27% 26%
Freddie Actual 14% 15% 16% 18% 21% 23% 20% 21% 23% 26% 26% 26% 23%
Underserved 21% 24% 24% 24% 24% 31% 31% 31% 31% 37% 38% 38% 39%
Goal
Fannie Actual 25% 29% 27% 27% 31% 33% 33% 32% 32% 41% 43% 43% 39%
Freddie Actual 28% 26% 26% 27% 29% 32% 31% 33% 34% 43% 44% 43% 38%
As the table shows, Fannie and Freddie exceeded the AH goals virtually each
year, but not by signifi cant margins. Th ey simply kept pace with the increases in the
goals as these requirements came into force over the years. Th is alone suggests that
they did not increase their purchases in order to earn profi ts. If that was their purpose
they would have substantially exceeded the goals, since their fi nancial advantages
(low fi nancing costs and low capital requirements) allowed them to pay more for
the mortgages they wanted than any of their competitors. As HUD noted in 2000:
“Because the GSEs have a funding advantage over other market participants, they
have the ability to underprice their competitors and increase their market share.” 115
As early as 1999, there were clear concerns at Fannie about how the 50
percent LMI goal—which HUD had signaled as its next move—would be met.
116
In a June 15, 1999, memorandum, four Fannie staff members proposed three
categories of rules changes that would enable Fannie to meet the goals more easily:
(i) persuade HUD to change the goals accounting (what goes into the numerator
and denominator); (ii) enter other businesses where the pickings might be goals-
rich, such as manufactured housing and, signifi cantly, Alt-A and subprime (“Eff orts
to expand into Alt-A and A-markets (the highest grade of subprime lending) should
also yield incremental business that will have a salutary eff ect on our low-and
moderate-income score”); and (iii) persuade HUD to adopt diff erent methods of
goals scoring.
By 2000, Fannie was eff ectively in competition with banks that were required
to make mortgage loans under CRA to roughly the same population of low-income
borrowers targeted in HUD’s AH goals. Rather than selling their CRA loans to
Fannie and Freddie, banks and S&Ls had begun to retain the loans in portfolio. In
a presentation in November 2000, Barry Zigas, a Senior Vice President of Fannie,
noted that “Our own anecdotal evidence suggests that this increase [in banks’ and

114 FHFA Mortgage Market Note 10-2, http://www.fh fa.gov/webfi les/15408/Housing%20Goals%201996-
2009%2002-01.pdf.pdf.
115 http://frwebgate.access.gpo.gov/cgi-bin/getdoc.cgi?dbname=2000_register&docid=page+65093
-65142.
116 Bell, Kinney, Kunde and Weech, through Zigas and Marks internal memo Frank Raines, “RE: HUD
Housing Goals Options,” June 15, 1999.