"In 2006 and early 2007, the industry, many analysts and market observers were generally not predicting a downturn in the housing and credit markets to the magnitude of what has since emerged, and outlooks for particular market segments at that time varied significantly." - Fannie Mae chief Daniel H. Mudd
That is the excuse given by Fannie Mae (FNM) CEO Daniel Mudd as to why the GSE bought into so much ruinous paper (and at the peak of the market to boot).
One would imagine that the people running the biggest purchaser of mortgages in the world would have their own independent expert view, would understand housing, and might be familiar with the real estate cycles in the United States.
One would be wrong.
I find it amusing that some lying liars argue that the Fannie Mae (FNM) and Freddie Mac (FRE) were "forced" to purchase sketchy mortgages by some government HUD or CRA mandate. As the Washington Post reveals, that turns out to be completely false. Rather, it was a mad grab for growth that sent Fannie into the arms of the most risky mortgages.
Fannie was supposed to be buying mortgages and then securitizing them itself. Instead, Fannie Mae thought itself a large hedge fund, and was investing in RMBS and derivatives packaged by others. According to regulatory data, as far back as 2002, Fannie Mae had invested in "tens of billions of dollars of such securities."
The risk reach by Fannie is detailed in a number of the internal Fannie memos that describes this as part of their growth oriented business model:
In January 2007, as years of loose mortgage lending were about to send the nation's housing market into devastating decline, Fannie Mae chief executive Daniel H. Mudd wrote a confidential memo to his board.
