During the presidential debate last night, Sen. John McCain (R-AZ) attempted to explain America’s financial meltdown by saying that “the catalyst for this housing crisis” was Fannie Mae and Freddie Mac (although he botched the delivery by saying Freddie Mae). McCain then claimed that the two GSEs “caused the subprime lending situation.” Watch it:
McCain, however, does not have his story straight. As McClatchy reported this week “federal housing data reveal that the charges [against Fannie and Freddie] aren’t true, and that the private sector, not the government or government-backed companies, was behind the soaring subprime lending at the core of the crisis.”
In 2006, during the height of the subprime boom, “more than 84 percent of the subprime mortgages…were issued by private lending institutions.” That same year, Fannie and Freddie’s regulator – the Office of Federal Housing Enterprise Oversight – “imposed new restrictions…that led to Fannie and Freddie losing even more market share in the booming subprime market.”
In fact, back in 2002, Freddie Mac “announced that it will no longer purchase subprime loans that include a variety of onerous features commonly associated with predatory financing.” Realty Times called this “a strategy that has the potential to seriously impact abusive lenders.”
Today, Dean Baker, the co-director of the Center for Economic and Policy Research, noted that “while Fannie and Freddie, as huge actors in the mortgage market, certainly contributed to the bubble, it is absurd to point to them as principle culprits.” He pointed out that “their market share actually fell as the bubble grew to ever more dangerous levels, dropping from 50.1 percent in 2002 to just 34.8 percent at the peak of the bubble in 2006.”
This was not the first time that McCain tried to incorrectly blame Fannie and Freddie for the financial crisis. But repeating this claim doesn’t make it any more true.
UPDATE: During a Senate Banking Committee hearing today, Sen. Chris Dodd (D-CT) explained that those blaming Fannie and Freddie are “wrong” and the crisis is a “direct consequence of years of regulatory failures by government officials.” Watch it: