Fannie Executive Discusses Scope of Housing Bust

Edward Pinto, Chief Credit Officer of Fannie Mae from 1987 to 1989, discusses the reasons for the recent housing bubble bust in a podcast with Chip Hanlon of Market Neutral. It is certainly an interesting interview. Take from it what you will. It can be found here. An excerpt:

Edward: Congress is the only entity. It's a congressionally granted charter. The only way to protect their [Fannie and Freddie] charter and the provisions under it that were very, very valuable - the high leverage, the high portfolio that they could do, the implicit government guarantee, the exemption from taxes, the exemption from SEC oversight - these were all part of their charter.

And in order to protect that, the decision was made to embrace the charter and the strategy for protecting it was affordable housing. And Congress embraced tha strategy with a vengeance.

Chip: Getting into it for the first time.

Edward: In 1992, put in a provision requiring Fannie and Freddie to do affordable housing in a certain percentage to be set by HUD. So now they had HUD setting the goals. And HUD has been a disaster when it comes to affordable housing.

Chip: And thus our first slide into this mess.