2 Analysis of Federal Home Loan Mortgage Corp., Moody’s Investors Service, December 8, 2006.
3 “OCC and OTS Mortgage Metrics Report,” Office of the Comptroller of the Currency, Fourth Quarter 2009.
4 Dean Baker, “The Run-Up in Home Prices: Is It Real or Is It Another Bubble?,” Center for Economic and Policy Research, August 2002.
5 A report from the Government Accountability Office in 2014 argued that evidence for the market’s belief in an implicit too-big-to-fail guarantee had largely disappeared based on a reduction in interest rate spreads. See “Large Bank Holding Companies: Expectations of Government Support,” Government Accountability Office, July 2014, no. GAO-14-612. This analysis, however, also finds little evidence of the belief in a too-big-to-fail guarantee in 2006, before the crisis.
6 Wayne Passmore, Shane Sherman, and Gillian Burgess, “The Effect of Government-Sponsored Enterprises on Mortgage Interest Rates,” Finance and Economics Discussion Series, Divisions of Research & Statistics and Monetary Affairs, Federal Reserve Board, Washington, D.C., 2015–16.
7 “Transitioning to Alternative Structures for Housing Finance,” Congressional Budget Office, December 2014.
8 It is worth noting in this respect that Fannie Mae had a major accounting scandal in the early part of the last decade. Franklin Raines, who was CEO of the company, along with other top officials, manipulated the reporting of profits in order to reach targets set for bonuses. Here also the issue is clearly one that resulted from Fannie Mae being run for profit rather than the public service goals of the company.
9 The GSEs can explicitly share the risk by selling “credit risk notes,” which have the investors bear a portion of the losses on a pool of mortgages. They GSEs have begun experimenting with this risk-sharing, but it still only applies to a relatively small portion of the MBS they have issued.
10 For those troubled by my dismissal of interest rate risk as a problem, consider the fact that the government has trillions of dollars of debt outstanding in the form of long-term bonds. If the market value of the mortgages held by the GSEs has fallen due to higher interest rates, so too has the market value of the long-term debt the government has issued. The net asset position of the government almost certainly would improve when interest rates rise.