The other day I linked to a story about an internal Freddie Mac email memo that showed they knew that subprime loans were risky to their borrowers. Bad as the excerpt was, reading the entire memo makes it worse. Read the whole memo here.
The memo came to light last week as part of House hearings into Fannie Mae and Freddie Mac. One former Fannie Mae executive testifying at the hearings described an “orgy” of risky loans.
Freddie Mac’s senior executives ignored similar warnings. Donald J. Bisenius, a senior vice president, wrote in April 2004 to a colleague that “we did no-doc lending before, took inordinate losses and generated significant fraud cases.”
“I’m not sure what makes us think we’re so much smarter this time around,” he wrote.
Housing analysts say that the former heads of Fannie Mae and Freddie Mac increased their nonprime business because they felt pressure from the government and advocacy groups to meet goals for affordable housing as well as pressure to compete with Wall Street. But Mr. Pinto said one in five Alt-A loans in recent years were made to investors, not to first-time home buyers.