Brad Delong on Cato Unbound claims that demand shifted to private mortgage lenders, so that Fannie and Freddie’s excessively risky loans weren’t the primary reason why the two lenders failed.
I’m not sure if I buy this argument. First of all, F&F may have lost 10% of their market share, but the risky borrowers where still getting their subprime loans from private lender. So the subprime collapse, which F&F where a part of, was still probably a result of the CRA and government insurances.
Additionally, its hard to say if the decrease in demand would have threatened profits enough to cause the two giant lenders to collapse. Even if some risky borrowers switched over the private sector, and it doesn’t seem like they all did, I find it hard to believe that mortgage defaults weren’t the primary reason for F&F’s collapse, and the collapse of the entire industry.Published in