WASHINGTON (CN) – Testifying before a federal commission, two former executives said Fannie Mae was struggling to compete with Wall Street when it started backing risky mortgages that contributed to the housing bubble. “In retrospect, there was overinvestment in housing,” former CEO Daniel Mudd said. “There was too little skin in the game.”
Mudd and former chief business officer Robert Levin testified before the Federal Crisis Inquiry Commission Friday about what fueled the housing bubble.
When Wall Street started issuing private-label residential mortgage-based securities, Fannie Mae, already struggling to meet its government-mandated housing goals, was forced to move into other, riskier markets, buying mortgages with little backing. “We were concerned about losing relevance in the marketplace,” Levin said.
As a government-sponsored enterprise, Fannie Mae was forced to meet housing goals set by the Department of Housing and Urban Development, requiring the company to provide levels of affordable housing “that were higher than what our market was naturally producing,” Levin said.
As Fannie Mae took on riskier mortgages, the private-label securities market kept growing, causing the housing bubble to expand and eventually burst.
“With the benefit of hindsight, had we anticipated the oncoming market meltdown, we would have been far less likely to expand our involvement into these nontraditional products,” Levin said.
Because Fannie Mae was only allowed to work in the mortgage arena under its charter, “we took the brunt of the crisis head on,” Levin said.
Mudd told the commission that the buck stopped with him. “I was the CEO of the company and I accept responsibility for everything that happened on my watch,” he said.
The government seized the company in fall 2008, and poured more than $100 billion in taxpayer money to Fannie Mae and sister company Freddie Mac.
Federal regulators James Lockhard and Armando Falcon also testified Friday.
Falcon called the government-sponsored enterprise model “inherently flawed” and said that if the two companies are allowed to remain in existence, they will continue to cause problems for the country.