Fannie Mae-No Politics (FNMA)

[HappyAlways]

The housing crisis was caused mainly by the Administration. The Senators/Congressman kept pressing the market to accept sub-prime mortgages (in order to support low-income family housing). At some points, they passed regulations that the GSE MBS had to include certain % (15% ?) of sub-prime mortgages. Banks and mortgage brokers did not have any concern, as they requested higher interest for subprime mortgages and immediately sold them (risk) to the GSEs.

Fannie (according to a retired CFO) was aware of the risk as early as 2006. But, they could do nothing. So, they started piling up reserves and buying CDSs (i.e. to cover the mortgage risk) hoping to transfer the risks to other financial institutions and insurance companies. It ended up all TBTFs were unable to cope with the crisis. The GSEs bailout in 2008 was actually to bailout the TBTFs. That's my understanding and may not be correct. Please do your own DD.