The article below claims that Fannie and Freddie were not responsible because 1) “84% of subprime mortgages were issued by private lending institutions.”2) “Only one of the top 25 subprime lenders in 2006 was directly subject to the housing law that’s being lambasted by conservative critics.”
To point 1) Here is what this misses. The private sector issued these loans and then Fannie and Freddie bought them through securities. In 2004, they purchased $175 billion (of subprime securities) — 44 percent of the market.
To point 2) Many of the securities that were not purchased by Fannie were purchased by banks to meet their community reinvestment act requirements. Instead of making these loans themselves they could just buy these securities could to count toward meeting its requirement to fund disadvantage borrowers.
So Fannie didn’t issue the subprime loans. (by law they were not allowed to issue them). Instead they just funded them! It’s like a Mafia boss arguing that “I didn’t kill anyone. I just helped pay for the guy who did”
And banks trying to meet the CRA (or similar requirements) may not have issued a large percentage of the loans. No. They just had to buy someone else’s junk so that they could!