PETER J. WALLISON, ARTHUR F. BURNS FELLOW IN FINANCIAL POLICY STUDIES
AMERICAN ENTERPRISE INSTITUTE
JANAUARY 2011
...The fact that the credit risk of two-thirds of all the NTMs in the financial system was held by the government or by entities acting under government control demonstrates the central role of the government’s policies in the development of the 1997-2007 housing bubble, the mortgage meltdown that occurred when the bubble deflated, and the financial crisis and recession that ensued. Similarly, the fact that only 7.8 million NTMs [non-traditional mortgages] were held by investors and financial institutions in the form of PMBS shows that this group of NTMs were less important as a cause of the financial crisis than the government’s role. The Commission majority’s report focuses almost entirely on the 7.8 million PMBS, and is thus an example of its determination to ignore the government’s role in the financial crisis.
| Entity | No. of Subprime and Alt-A Loans | Unpaid Principal Amount |
| Fannie Mae and Freddie Mac | 12 million | $1.8 trillion |
| FHA and other Federal | 5 million | $0.6 trillion |
| CRA and HUD Programs | 2.2 million | $0.3 trillion |
| Total Federal Government | 19.2 million | $2.7 trillion |
| Other (including subprime and Alt-A PMBS issued by Countrywide, Wall Street and others) | 7.8 million | $1.9 trillion |
| Total | 27 million | $4.6 trillion |
...In the Triggers memo, based on his research, Pinto estimated that Fannie and Freddie purchased about 50 percent of all CRA loans over the period from 2001 to 2007 and that, of the balance, about 10-15 percent were insured by FHA, 10-15 percent were sold to Wall Street, and the rest remain on the books of the banks that originated the loans.159 Many of these loans are likely unsaleable in the secondary market because they were made at rates that did not compensate for risk or lacked mortgage insurance—again, the competition for these loans among the GSEs, FHA and the banks operating under CRA requirements inevitably raised their prices and thus underpriced their risk. To sell these loans, the banks holding them would have to take losses, which many are unwilling to do....
