Research summary
Research summary
Topic summary
Federal affordable housing quotas forced Fannie Mae and Freddie Mac to systematically lower credit standards across the mortgage market.
Key research questions
- Investigate this contrarian claim about What caused the 2008 financial crisis?.
- Research this topic from public information: What caused the 2008 financial crisis?.
Important claims and supporting citations
Alan Greenspan testified before the FCIC that Fannie Mae and Freddie Mac purchased an estimated $214 billion in subprime private-label securities in 2003–2004 to meet HUD housing goals.
Fannie Mae's single-family and multifamily mortgage purchases alone met all HUD affordable housing goals in 2003 and 2004 without relying on subprime or Alt-A securities.
FHFA formally determined that achievement of the 2008 housing goals was infeasible and waived compliance for that year.
In 2008, both Fannie Mae and Freddie Mac failed to meet the HUD low-and-moderate-income goal of 56%, achieving 53.61% and 51.50% respectively.
A Federal Reserve study by Bhutta found HUD's Underserved Areas Goal produced only a 2.5% to 5% increase in GSE purchases in targeted tracts during 2005–2006.
Former OFHEO Director Armando Falcon Jr. testified to the FCIC that GSE investments in subprime and Alt-A mortgages were driven by profit and market share rather than housing goals.
HUD's October 2000 final rule explicitly excluded subprime B&C mortgages and loans lacking consideration of borrower ability-to-pay from housing goal credit.
HUD benchmarked its 2005–2008 low-and-moderate-income goal to an estimated 51–57 percent of units financed in the overall conventional conforming market.
Competing explanations
Alan Greenspan testified before the FCIC that Fannie Mae and Freddie Mac purchased an estimated $214 billion in subprime private-label securities in 2003–2004 to meet HUD housing goals.
The claim that the 2004 net capital rule change allowed investment banks to raise leverage from 12-15:1 to 30-40:1 is contested by the SEC, which argued the net capital rule applied to broker-dealers rather than holding companies.
Outstanding questions
- Government affordable housing mandates and GSE quotas drove the subprime mortgage expansion
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The SEC's 2004 Consolidated Supervised Entity (CSE) program brought the holding companies of Lehman Brothers,…
The SEC's 2004 Consolidated Supervised Entity (CSE) program brought the holding companies of Lehman Brothers, Bear Stearns, Goldman Sachs, Morgan Stanley, and Merrill Lynch under SEC supervision.
Labels: Source-linked, Low, known
Government affordable housing mandates and GSE quotas drove the subprime mortgage expansion
HUD affordable housing goals required Fannie Mae and Freddie Mac to purchase increasing quotas of low-to-moderate-income loans, reaching 56 percent of their total acquisitions by 2008.
Labels: Inferred, High, investigate
AIG Liquidity Crisis and Derivatives Exposure
AIG Liquidity Crisis and Derivatives Exposure
Labels: Inferred, Low
FCIC Findings on Crisis Causes and Oversight
FCIC Findings on Crisis Causes and Oversight
Labels: Inferred, Low
Failure and Lending Practices of Washington Mutual
Failure and Lending Practices of Washington Mutual
Labels: Inferred, Low
Senate Levin-Coburn Investigation
Senate Levin-Coburn Investigation
Labels: Inferred, Low
A Federal Reserve study by Bhutta found HUD's Underserved Areas Goal produced only a 2.5% to 5% increase in G…
A Federal Reserve study by Bhutta found HUD's Underserved Areas Goal produced only a 2.5% to 5% increase in GSE purchases in targeted tracts during 2005–2006.
Labels: Source-linked, Low
AIG's collapse was triggered by credit rating downgrades from S&P (to A-), Moody's, and Fitch following Lehma…
AIG's collapse was triggered by credit rating downgrades from S&P (to A-), Moody's, and Fitch following Lehman Brothers' bankruptcy, which required billions in cash collateral for AIG Financial Products' credit default swaps.
Labels: Inferred, Low, known
Alan Greenspan testified before the FCIC that Fannie Mae and Freddie Mac purchased an estimated $214 billion…
Alan Greenspan testified before the FCIC that Fannie Mae and Freddie Mac purchased an estimated $214 billion in subprime private-label securities in 2003–2004 to meet HUD housing goals.
Labels: Contested, Low
Former OFHEO Director Armando Falcon Jr.
Former OFHEO Director Armando Falcon Jr. testified to the FCIC that GSE investments in subprime and Alt-A mortgages were driven by profit and market share rather than housing goals.
Labels: Source-linked, Low
In 2008, both Fannie Mae and Freddie Mac failed to meet the HUD low-and-moderate-income goal of 56%, achievin…
In 2008, both Fannie Mae and Freddie Mac failed to meet the HUD low-and-moderate-income goal of 56%, achieving 53.61% and 51.50% respectively.
Labels: Source-linked, Low
Washington Mutual Bank was a $300 billion thrift institution that became the largest bank failure in United S…
Washington Mutual Bank was a $300 billion thrift institution that became the largest bank failure in United States history.
Labels: Inferred, Low, known
HUD benchmarked its 2005–2008 low-and-moderate-income goal to an estimated 51–57 percent of units financed in…
HUD benchmarked its 2005–2008 low-and-moderate-income goal to an estimated 51–57 percent of units financed in the overall conventional conforming market.
Labels: Source-linked, Low
The Senate Permanent Subcommittee on Investigations (PSI) Levin-Coburn inquiry attributed the crisis to four…
The Senate Permanent Subcommittee on Investigations (PSI) Levin-Coburn inquiry attributed the crisis to four specific causes through case studies of Washington Mutual, Moody's, S&P, Goldman Sachs, Deutsche Bank, and OTS.
Labels: Source-linked, Low, known
In its November 2004 Final Rule, HUD reduced its proposed 2008 low-and-moderate-income housing goal from 57%…
In its November 2004 Final Rule, HUD reduced its proposed 2008 low-and-moderate-income housing goal from 57% to 56%.
Labels: Source-linked, Low
On March 16, 2011, the FDIC filed a lawsuit against three former Washington Mutual executives (Kerry K.
On March 16, 2011, the FDIC filed a lawsuit against three former Washington Mutual executives (Kerry K. Killinger, Stephen J. Rotella, and David C. Schneider) alleging extreme and historically unprecedented risk-taking in home loans.
Labels: Inferred, Medium, known
A 2015 regression-discontinuity study by Ghent, Hernández-Murillo, and Owyang found no visible discontinuity…
A 2015 regression-discontinuity study by Ghent, Hernández-Murillo, and Owyang found no visible discontinuity in loan originations or interest rates around GSE housing goal cutoffs.
Labels: Inferred, Low
The FCIC identified over-the-counter (OTC) derivatives as one of its nine primary conclusions, stating they f…
The FCIC identified over-the-counter (OTC) derivatives as one of its nine primary conclusions, stating they fueled mortgage securitization and expanded unchecked to trillions in notional value.
Labels: Source-linked, Low, known
The claim that the 2004 net capital rule change allowed investment banks to raise leverage from 12-15:1 to 30…
The claim that the 2004 net capital rule change allowed investment banks to raise leverage from 12-15:1 to 30-40:1 is contested by the SEC, which argued the net capital rule applied to broker-dealers rather than holding companies.
Labels: Contested, Low, known
The Financial Crisis Inquiry Commission (FCIC) concluded that the 2008 financial crisis was avoidable and res…
The Financial Crisis Inquiry Commission (FCIC) concluded that the 2008 financial crisis was avoidable and resulted from human action and inaction rather than natural causes or computer modeling failures.
Labels: Source-linked, Low, known
HUD's low-and-moderate-income goal for GSEs was 30% for 1993–1995, 40% in 1996, 42% for 1997–2000, 50% for 20…
HUD's low-and-moderate-income goal for GSEs was 30% for 1993–1995, 40% in 1996, 42% for 1997–2000, 50% for 2001–2004, and ramped annually from 52% in 2005 to 56% in 2008.
Labels: Source-linked, Low
FHFA formally determined that achievement of the 2008 housing goals was infeasible and waived compliance for…
FHFA formally determined that achievement of the 2008 housing goals was infeasible and waived compliance for that year.
Labels: Source-linked, Low
Fannie Mae's single-family and multifamily mortgage purchases alone met all HUD affordable housing goals in 2…
Fannie Mae's single-family and multifamily mortgage purchases alone met all HUD affordable housing goals in 2003 and 2004 without relying on subprime or Alt-A securities.
Labels: Source-linked, Low
A 2014 study by Moulton found that the Special Affordable Goal increased GSE purchases from very low-income b…
A 2014 study by Moulton found that the Special Affordable Goal increased GSE purchases from very low-income borrowers by 4.4% but had no effect on mortgage lending.
Labels: Inferred, Low
The FCIC found that several financial industry figures appeared to have acted illegally and referred individu…
The FCIC found that several financial industry figures appeared to have acted illegally and referred individuals for potential criminal prosecution.
Labels: Source-linked, High, known
Under the Housing and Economic Recovery Act of 2008 (HERA), the definition of low-income was changed from 60…
Under the Housing and Economic Recovery Act of 2008 (HERA), the definition of low-income was changed from 60 percent to 50 percent of area median income.
Labels: Inferred, Low
HUD's October 2000 final rule explicitly excluded subprime B&C mortgages and loans lacking consideration of b…
HUD's October 2000 final rule explicitly excluded subprime B&C mortgages and loans lacking consideration of borrower ability-to-pay from housing goal credit.
Labels: Source-linked, Low
The SEC's 2004 regulatory amendments were implemented to comply with the European Parliament's Financial Cong…
The SEC's 2004 regulatory amendments were implemented to comply with the European Parliament's Financial Conglomerates Directive (2002/87/EC), which mandated global consolidated supervision for firms operating in Europe.
Labels: Source-linked, Low, known
The Levin-Coburn staff report released on April 13, 2011 was the only bipartisan congressional report on the…
The Levin-Coburn staff report released on April 13, 2011 was the only bipartisan congressional report on the financial crisis, as the FCIC divided along party lines.
Labels: Source-linked, Low, known
The FCIC explicitly identified five primary causal mechanisms: widespread regulatory failures, breakdowns in…
The FCIC explicitly identified five primary causal mechanisms: widespread regulatory failures, breakdowns in corporate governance, excessive borrowing and risk-taking, ill-prepared policymakers, and systemic breaches in accountability and ethics.
Labels: Source-linked, Low, known
The Office of Thrift Supervision (OTS) allowed Washington Mutual to issue hundreds of billions in high-risk O…
The Office of Thrift Supervision (OTS) allowed Washington Mutual to issue hundreds of billions in high-risk Option ARM mortgages knowing the bank used unsafe teaser rates and unrealistic borrower qualifications.
Labels: Inferred, Medium, known
The Levin-Coburn Senate investigation identified widespread conflicts of interest as the central driver of th…
The Levin-Coburn Senate investigation identified widespread conflicts of interest as the central driver of the crisis, detailing how firms exploited clients and credit rating agencies assigned AAA ratings to high-risk assets.
Labels: Source-linked, Low, known
AIG's collateral-call crisis began months before September 2008, with counterparties demanding billions by Ju…
AIG's collateral-call crisis began months before September 2008, with counterparties demanding billions by June, a large share of which was requested by Goldman Sachs.
Labels: Inferred, Low, known
Prior to the 2004 CSE rule change, Bear Stearns had already reported a gross leverage ratio of 28.0 with $226…
Prior to the 2004 CSE rule change, Bear Stearns had already reported a gross leverage ratio of 28.0 with $226.7 billion in total assets as of February 29, 2004.
Labels: Inferred, Low, known
The FCIC found that AIG senior management experienced severe governance breakdowns and did not understand the…
The FCIC found that AIG senior management experienced severe governance breakdowns and did not understand the terms and risks of the company's derivatives exposure.
Labels: Source-linked, Low, known
Bear Stearns operated under an internal financial statement guideline capping its net adjusted leverage ratio…
Bear Stearns operated under an internal financial statement guideline capping its net adjusted leverage ratio at no more than 15.0 rather than an explicit regulatory cap.
Labels: Inferred, Low, known
Republican Senator Tom Coburn concluded that unresolved and undisclosed conflicts of interest were at the hea…
Republican Senator Tom Coburn concluded that unresolved and undisclosed conflicts of interest were at the heart of the financial crisis rather than government housing policy.
Labels: Inferred, Low, known
The FCIC rejected claims that regulators lacked authority, noting that the SEC could have limited risky pract…
The FCIC rejected claims that regulators lacked authority, noting that the SEC could have limited risky practices and required more capital at major investment banks, and the New York Fed could have intervened in Citigroup's excesses.
Labels: Source-linked, Low, known