Yesterday, the House Committee on Oversight and Government Reform held a hearing on the role of Fannie Mae and Freddie Mac in the financial crisis, focusing on the “extent to which the actions and policies of Fannie Mae and Freddie Mac may have contributed to the ongoing crisis.” Witnesses at the hearing included:

Panel I:

Panel II:

  • Mr. Charles Calomiris, Arthur Burns Scholar in International Economics, American Enterprise Institute
  • Mr. Arnold King, Adjunct Scholar, Cato Institute
  • Mr. Edward Pinto, Former Chief Credit Officer, Fannie Mae; Real Estate Financial Services Consultant
  • Mr. Thomas Stanton, Fellow, Center for the Study of American Government at Johns Hopkins University  

At the hearing, Committee members grilled the former chiefs of government-sponsored entities Fannie Mae and Freddie Mac, condemning the companies as the primary cause of the collapse of the housing market. In his final hearing as Chairman, Henry Waxman (D-CA) accused the companies of making ill-advised decisions “that are now costing taxpayers billions of dollars” by expanding into non-traditional mortgage businesses. In September, the Committee received thousands of internal documents that Waxman believed “make clear that Fannie Mae and Freddie Mac knew what they were doing.”

In his testimony, Richard Syron defended the GSEs’ actions, claiming they were limited by regulatory mandates to achieve, create and sustain affordability and stability in the housing market. Syron was also criticized for the firing of his chief risk officer, David Andrukonis, who had raised his concerns about risky lending.

Daniel Mudd criticized the “no man’s land” that characterizes the GSEs. He pointed to the difficult balancing act required in upholding both public and private interests, and suggested that the companies be taken either fully public or fully private.

Disagreeing with Mudd, Franklin Raines stated that “it will be hard to find a model that has more benefits and fewer demerits” than the GSE model. Raines conceded that the companies followed private entities into risky markets, but highlighted that the Office of Federal Housing Enterprise Oversight chose not to limit the amount of risk the GSEs could assume.

Leland Brendsel also defended the companies, emphasizing the GSEs’ long history of “addressing deficiencies in the mortgage markets.” He specified the very existence of long term fixed-rate mortgages as evidence of the GSEs’ contributions. In response to a question about solving the current crisis, Brendsel expressed his concern about the spiking rate of home foreclosures and the “cascading effect” of home foreclosures on the real estate market.

The second panel consisted of a number of economic and governmental scholars. The scholars provided the Committee members with additional background on the housing crisis, but did not agree with each other on the role played by Fannie Mae and Freddie Mac.

Representative Edolphus Towns (D-NY) will assume the Committee’s chairmanship in the 111th Congress.