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518 Dissenting Statement

Freddie Mac. As noted earlier, in its limited review of the role of the GSEs
in the fi nancial crisis, the Commission spent most of its time and staff resources
on a review of Fannie Mae, and for that reason this dissent focuses primarily on
documents received from Fannie. However, things were not substantially diff erent
at Freddie Mac. In a document dated June 4, 2009, entitled “Cost of Freddie Mac’s
Aff ordable Housing Mission,” a report to the Business Risk Committee, of the Board
136
of Directors, several points were made that show the experience of Freddie was no
diff erent than Fannie’s:
• Our housing goals compliance required little direct subsidy prior to 2003, but
since then subsidies have averaged $200 million per year.
• Higher credit risk mortgages disproportionately tend to be goal-qualifying.
Targeted aff ordable lending generally requires ‘accepting’ substantially higher
credit risk.

• We charge more for targeted (and baseline) aff ordable single-family loans, but not
enough to fully off set their higher incremental risk.
• Goal-qualifying single-family loans accounted for the disproportionate share of
our 2008 realized losses that was predicted by our models. (slide 2)
• In 2007 Freddie Mac failed two subgoals, but compliance was subsequently
deemed infeasible by the regulator due to economic conditions. In 2008 Freddie
Mac failed six goals and subgoals, fi ve of which were deemed infeasible. No
enforcement action was taken regarding the sixth missed goal because of our
fi nancial condition. (slide 3)
• Goal-qualifying loans tend to be higher risk. Lower household income correlates
with various risk factors such as less wealth, less employment stability, higher
loan-to-value ratios, or lower credit scores. (slide 7)
• Targeted aff ordable loans have much higher expected default probabilities... Over
one-half of targeted aff ordable loans have higher expected default probabilities
than the highest 5% of non-goal-qualifying loans. (Slide 8)
Th e use of the aff ordable housing goals to force a reduction in the GSEs’
underwriting standards was a major policy error committed by HUD in two
successive administrations, and must be recognized as such if we are ever to
understand what caused the fi nancial crisis. Ultimately, the AH goals extended the
housing bubble, infused it with weak and high risk NTMs, caused the insolvency of
Fannie and Freddie, and—together with other elements of U.S. housing policy—was
the principal cause of the fi nancial crisis itself.
When Congress enacted the Housing and Economic Recovery Act of 2008
(HERA), it transferred the responsibility for administering the aff ordable housing
goals from HUD to FHFA. In 2010, FHFA modifi ed and simplifi ed the AH goals,
and eliminated one of their most troubling elements. As Fannie had noted, if the AH
goals exceed the number of goals-eligible borrowers in the market, they were being
forced to allocate credit, taking it from the middle class and providing it to low-
income borrowers. In eff ect, there was a confl ict between their mission to advance
aff ordable housing and their mission to maintain a liquid secondary mortgage
136 Freddie Mac, “Cost of Freddie Mac’s Aff ordable Housing Mission,” Business Risk Committee, Board
of Directors, June 4, 2009.