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Activities,” the authors noted in slide 10 that AH goal costs had risen from
$2,632,500 in 2000 to $13,447,500 in 2003. Slide 17 is entitled: “Meeting Future
HUD Goals Appear Quite Daunting and Potentially Costly” and reports, “Based on
2003 experience where goal acquisition costs (relative to Fannie Mae model fees)
cost between $65 per goals unit in the fi rst quarter to $370 per unit in the fourth
quarter, meeting the shortfall could cost the company $6.5-$36.5 million to purchase
suffi cient units.” Th e presentation concludes (slide 20): “Cost of mission activities—
explicit and implicit—over the 2000-2004 period likely averaged approximately
$200 million per year.”
Earlier, I noted the eff orts of Fannie and Freddie to window-dress their
records for HUD by temporarily acquiring loans that would comply with the AH
goals, while giving the seller the option to reacquire the loans at a later time. In 2005,
we begin to see eff orts by Fannie’s staff to accomplish the same window-dressing in
another way--delaying acquisitions of non-goal-eligible loans so Fannie can meet
the AH goals in that year; we also see the fi rst eff orts to calculate systematically
the eff ect of goal-compliance on Fannie’s profi tability. In a presentation dated
September 30, 2005, Barry Zigas, the key Fannie offi cial on aff ordable housing,
outlined a “business deferral option.” Under that initiative, Fannie would ask seven
major lenders to defer until 2006 sending non-goal loans to Fannie for acquisition.
Th is would reduce the denominator of the AH goal computation and thus bring
Fannie nearer to goal compliance in the 4th quarter of 2005. Th e cost of the deferral
alone was estimated at $30-$38 million. 122
In a presentation to HUD on October 31, 2005, entitled “Update on Fannie
123
Mae’s Housing Goals Performance,” Fannie noted several “Undesirable Tradeoff s
Necessary to Meet Goals.” Th ese included signifi cant additional credit risk, and
negative returns (“Deal economics are well below target returns; some deals are
producing negative returns” and “G-fees may not cover expected losses”). One of
the most noteworthy points was the following: “Liquidity to Questionable Products:
Buying exotic product encourages continuation of risky lending; many products
present with signifi cant risk-layering; consumers are at risk of payment shock and
loss of equity; potential need to waive our responsible lending policies to get goals
business.”
Much of the narrative about the fi nancial crisis posits that unscrupulous and
unregulated mortgage originators tricked borrowers into taking on bad mortgages.
Th e idea that predatory lending was a major source of the NTMs in the fi nancial
system in 2008 is a signifi cant element of the Commission majority’s report, although
the Commission was never able to provide any data to support this point. Th is
Fannie slide suggests that loans later dubbed “predatory” might actually have been
made to comply with the AH goals. Th is possibility is suggested, too, in a message
sent in 2004 to Freddie’s CEO, Richard Syron, by Freddie’s chief risk manager,
David Andrukonis, when Syron was considering whether to authorize a “Ninja” (no
income/no jobs/no assets) product that he ultimately approved. Andrukonis argued
against authorizing Freddie’s purchase: “Th e potential for the perception and reality
121 Fannie Mae, “Costs and Benefi ts of Mission Activities, Project Phineas,” June 14, 2005.
122 Barry Zigas, “Housing Goals and Minority Lending,” September 30, 2005.
123 Fannie Mae, “Update on Fannie Mae’s Housing Goals Performance,” Presentation to the U.S.
Department of Housing and Development, October 31, 2005.