(Article changed on January 15, 2014 at 07:52)
Of course there are many big lies. But
The Big Lie about the financial crisis argues that the housing bubble and the mortgage crisis were caused by affordable
housing policy and by Fannie Mae and Freddie Mac.
The Big Lie's False Equivalency re: "Subprime"
The Big Lie is generally predicated on some kind of false equivalency, which takes the best performing mortgages in the marketplace, those financed by Fannie Mae and Freddie Mac, and conflates them with the worst performing loans, those financed through private label mortgage securitizations, in order to make the specious claim that Fannie and Freddie caused the housing bubble and the mortgage crisis.
Proponents of The Big Lie use two devices to lend their narrative verisimilitude. They present a few cherry picked factoids out of context to argue that Fannie and Freddie's credit standards were seriously compromised. Or they simply pander to class bigotry.
Typically, he cites the discredited metrics devised by AEI scholar Ed Pinto. Five years ago, Pinto declared that about half of all were subprime or similarly risky, and most of those "default prone" mortgages were financed by Fannie and Freddie. Pinto and Wallison keep repeating this mantra, notwithstanding the mountain of data (see more here) that debunks those risk categorizations. Pinto and his well known disciples--the mortgage "experts" who testify at hearings convened by House Financial Service Committee Chair Rep. Jeb Hensarling--have, for the most part, entered into a conspiracy of silence. They refuse to compare loan Fannie and Freddie's loan performance with that of the rest of the market, and thereby concede that Pinto's risk categories make no sense.
Wallison and his compatriots also invoke social stereotypes to create a different false equivalency, by suggesting that the terms "low-income," "poor credit," and "subprime," are all interchangeable.
So that, by their definitions, affordable housing goals aimed at low income borrowers drove down credit standards for Fannie, Freddie, and the rest of the mortgage market.
The Big Lie's False Equivalency re: The Housing Bubble
Now Wallison wants us to believe that the pre-2007 housing bubble was connected to affordable housing policy and Fannie and Freddie. He writes:
Both this [current] bubble and the last one were caused by the government's housing policies, which made it possible for many people to purchase homes with very little or no money down. In 1992, Congress adopted what were called "affordable housing" goals for Fannie Mae and Freddie Mac, which are huge government-backed firms that buy mortgages from banks and other lenders. Then, as now, they were the dominant players in the residential mortgage markets. The goals required Fannie and Freddie to buy an increasing quota of mortgages made to borrowers who were at or below the median income where they lived.
The claim that the housing bubble was tied to Fannie and Freddie or affordable housing policy is demonstrably false.
We can compare home price appreciation, measured on home purchases financed by Fannie and Freddie, with home price appreciation indexes compiled by Case-Shiller, (see page 89 here) and the disparity is striking. As Mark Zandi told the FCIC, he was shocked that many bankers made the fatal mistake of relying on FHFA home price data in their investment analyses.
The Big Lie's False Equivalency re: Low Down Payments
Wallison plucks out a tiny percentage of mortgages financed by Fannie and Freddie in order to create the illusion that they opened the floodgates to large volumes of low down payment mortgages.