Dennis' Mortgage Blog

The Wall Street Journal has an excellent editorial on the exposure that will result from the civil suit filed by the Securities and Exchange Commission against senior executives from Fannie Mae and Freddie Mac.

For many years I have been writing to members of the media detailing the increasing leniency from the advent of the Automated Underwriting Systems (AUS) used by Fannie and Freddie to the housing collapse in 2007.  It became rare that actual income or confirmation was required and quite often we would obtain results that would not even require an appraisal.  I blogged about the issue in September "Government Suing Wrong Parties."

In the editorial the WSJ takes to task members of Congress who have tried to whitewash Fannie and Freddie's role in the collapse of the mortgage markets that led to the housing market crash, instead attempting to blame lenders and originators as the main culprits.

What we in the industry have been saying for several years is that as originators we were providing products that were approved and encouraged by Fannie and Freddie, and tacitly by the federal government to expand home ownership.  Unfortunately too few of us used good judgment in advising clients as to what they could afford and as a result those borrowers who had no business purchasing or refinancing and pulling cash-out of their homes were approved, their loans funded and purchased by Fannie and Freddie who then sold them to investors as "Prime" mortgages.

I agree wholeheartedly with the editorial that the SEC should not settle this suit and instead force a trial and testimony so the American public can learn the deceit that occurred at the highest levels of the government backed Fannie and Freddie to push home ownership to those who should not have been homeowners and to push profits, and bonuses, for Fannie Mae and Freddie Mac.

Here is a link to the editorial:  "What Fannie and Freddie Knew."