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big part of Fannie and Freddie’s problems, mostly didn’t qualify for the goals. Many of the goals were based on borrowers’ in-come levels, and Alt-A loans o◊en had undocumented income.
SHAKY GROUND56CHAPTER THREE – THE BLAME GAMEDavid Min, a former congressional sta≠er who is now an as-sistant professor of law at the University of California, Irvine, did his own analysis of Pinto’s numbers, and found that roughly 65 percent of the “high-risk” loans that Pinto attributed to the a≠ordable-housing goals were actually ineligible for the goals. When a Republican member of the FCICpressed Ken Bacon, a former Fannie Mae executive, as to why Fannie began to move into higher-risk loans, Bacon responded: “It’s very hard to any one person to sit as the market moves and say, ‘I’m smarter than everyone in this market.’ Everyone was getting into the market, and I just can’t give you a breaking point. Over time, we started doing things we used not to do.” In addition to disregarding what former GSEexecutives say, Wallison also ignores the internal Fannie and Freddie pre-sentations made public by the FCICthat show them debating their move into riskier loans in the mid-2000s. If, as he argues, Fannie and Freddie were in the subprime business all along, it’s hard to come up with a good explanation for the document trail and the internal angst. Nor do Wallison and Pinto’s numbers reconcile well with observed reality. Fiderer asked a simple question: If there were really 31 million “risky” mortgages, and Fannie and Freddie were responsible for half of them, why was the peak rate of serious delinquency for GSE-backed loans only about 1.8 million? The reason is that Pinto defines “risk” far di≠erently than most and includes a large number of loans that didn’t turn out to be particularly risky. Another reality check is that if Fannie and Freddie led the race to the bottom, then you would expect to see much higher loss rates on their loans. Instead, the opposite is
BETHANY McLEANCOLUMBIA GLOBAL REPORTS57true. The FCICresearchers ended up rejecting Pinto’s analysis because they found that the loss rates on the GSEs’ loans were actually far smaller than those on comparable private-sector loans. But they did meet with him multiple times, and produced two detailed memos about mortgage performance, one of which was a direct response to his analysis. These, along with Pinto’s original analysis, were sent to all the commissioners; Wallison even forwarded Pinto’s response to one memo to the commis-sioners himself. There is also a two-hour-long videotaped in-terview with Pinto. All of this documentation is available online at the FCICarchives at Stanford University. “No matter what the facts say, Peter Wallison will continue to assert his claims that Elvis is alive and that the earth revolves around the sun,” says Phil Angelides, the California Democrat who chaired the FCIC.