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 homeownership rate from 63 percent to 69 percent, but now the rate has fallen back to 66 percent. Moreover, Fannie and Freddie did not make housing more affordable and even priced many first-time buyers out of the market.

Myth 3: Fannie and Freddie are essential for maintaining a working mortgage market. Without them, interest rates will increase and homeownership will plummet as more people are priced out of the housing market.

Fact 3: Interest rates are likely to go up. Yet it is not clear what impact this will have on homeownership rates. In the 1980s, interest rates on the average 30-year mortgage were significantly higher, yet homeownership rates were almost the same as they are today. Besides, the alternative to homeownership is not living on the street.

For additional information, see de Rugy's article http://reason.com/archives/2011/03/04/the-truth-about-fannie-and-fre

Category:

News & Politics

Tags:

• reason.tv
• veronique
• de rugy
• fannie mae
• freddie mac
• housing market
• recession
• bubble
• reason foundation
• reason magazine
• bloomberg tv
• paul krugman

[Bradshawful]

@usrevolution2 Liberals never recover, they just run out of other people's money.

[hob976]

She should have just read Thomas Woods' "Meltdown" when it came out 2 years ago...

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Better yet, the world should've listened to Peter Schiff when he was telling everyone in 2005-06 the housing market was gonna crash EXACTLY as it did.

[MishaAtreides]

Whatever you say about Clinton, he is quite possibly the smartest President we ever had. And by the time he left office, the economy was flushed with cash. A decade later, and we're on the brink of an economic meltdown.

[croasis2000]

@uodet i remember when the dems were saying the repubs were just "the party of 'no'". i always said to my liberal parrots "i wish that they were!!"

[uodet]

People are really waking up aren't they? lol I love it.

If you understand this, please message me and I want to get on your friends list.

We have something in common; we're learning how to say no, and mean it.

I have one thing to say to the Handlers;

NO

Note to globalist ass faces;

get used to the word NO because you'll be hearing ALOT more of it from now on.

Unite, get to know your neighbors, family and friends. You will be relying on them lots more in the very near future.

Unite.

[cat1012000]

Fannie & Freddie set the requirements for ALL mortgages & purposely kept lowering the standard for mortgages - thereby qualifying more people for mortgages & placing people in mortgages they couldn't afford. Their push to unreliable point scores, unverified mortgage reports, and exotic mortgages can ALL, I repeat ALL, be traced to Fannie & Freddie. & Thomas Woods' "Meltdown" is very good.

[classic7890]

Look,

.

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ALL economic bubbles are CREATED by Governments.

.

.

PERIOD.

[yakyakyak69]

Bankruptcy & Redistributionist Slavery is NOT "progress".

[Illumified]

Its enough to make me shake my head and cry (and I never cry) when I hear libs start to recognize the problems that they ignored before and after a crisis.or when creating a future crisis like obamacare will. What did she say at 5:06 "it was suppose to make things more affordable" and then sumthing bad happened. Sounds familiar.

[jrsub3]

@hob976 Isn't there a video of Schiff saying that, while everyone else on the panel laughed at him?

Of course, we could use a person like him right now in Washington, pointing policy makers in the right direction. Instead we have the Obama school of economics, which is the same ole shit of the last 70 years, expecting different results.

[NoDeity]

An unpleasant listening experience due to only one audio channel being active in this video. I expect better from ReasonTV.