Veronique de Rugy Explains Fannie and Freddie's Role in the Housing Crisis on Bloomberg

Did the government-sponsored housing finance companies Fannie Mae and Freddie Mac contribute to the housing crisis? Economist and New York Times columnist Paul Krugman thinks not. According to Krugman, Fannie and Freddie's role in the housing market collapse was insignificant because "they pulled back sharply after 2003, just when housing really got crazy." Furthermore, Krugman asserts, Fannie and Freddie "largely faded from the scene during the height of the housing bubble." In her weekly appearance on Bloomberg TV, Reason columnist Veronique de Rugy explains the truth about Fannie and Freddie's role in the housing crisis by separating economic myth from economic fact. Myth 1: The government-sponsored housing finance companies Fannie Mae and Freddie Mac had nothing to do with the housing crisis. They were simply innocent bystanders caught in the crossfire. Fact 1: Fannie and Freddie contributed to the housing crisis by making it easier for more people to take out loans for houses they could not afford. Beginning in 2000, Fannie and Freddie took on loans with low FICO scores, loans with low down payments, and loans with little or no documentation. Myth 2: Fannie and Freddie's role in the housing market increased homeownership, especially for first-time buyers and lower income earners. Fact 2: The small increase in homeownership rates were temporary and artificial, driven by unsustainable incentives. In the best case scenario, Fannie and Freddie may have increased the ...



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