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The Real Problem With Fannie and Freddie
...For decades Countrywide Financial was a largely unsuccessful firm that was only re-listed on the New York Stock Exchange in 1985. But between 1985 and 2003 Countrywide delivered investors a 23,000% return, exceeding the returns of Washington Mutual, Wal-Mart, and Warren Buffett’s Berkshire Hathaway. How did they do it? This 2000 report by the Fannie Mae Foundation provides a clue:

Countrywide tends to follow the most flexible underwriting criteria permitted under GSE and FHA guidelines. Because Fannie Mae and Freddie Mac tend to give their best lenders access to the most flexible underwriting criteria, Countrywide benefits from its status as one of the largest originators of mortgage loans and one of the largest participants in the GSE programs. …

When necessary—in cases where applicants have no established credit history, for example—Countrywide uses nontraditional credit, a practice now accepted by the GSEs....