Fannie Mae, Freddie Mac, and the Home Mortgage Foreclosure Crisis
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FANNIE MAE, FREDDIE MAC, AND THE HOME
MORTGAGE FORECLOSURE CRISIS
Christopher L. Peterson*
I.
For nearly sixty years following the Great Depression, the federal
government was the primary architect and sponsor of a secondary mortgage
market infrastructure that shaped the contours of American housing
finance.' In the years prior to the subprime crisis, two government
sponsored enterprises (GSEs), the Federal National Mortgage Association
(Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie
Mac), were the foremost twin pillars of federal housing policy. Generations
of Americans lived in homes purchased with mortgages assigned to these
two quasi-public companies. Like ordinary corporations, Fannie and
Freddie issued stock to profit-seeking investors and were managed by
profit-seeking executives and directors. Unlike other companies, bonds and
mortgage-backed securities issued by the companies carried a peculiarly
2
informal, but nonetheless now demonstrably present, federal guarantee.
While the federal government did not involve itself in the day-to-day
business of making loans, it chartered the two companies and maintained a
Professor of Law, University of Utah, S.J. Quinney College of Law. The author wishes to
thank Michael Kent and Tera Peterson for helpful conversations, comments, encouragement,
research assistance, and suggestions. I would also like to thank panelists and observers who
commented on an early version of this research in connection with a presentation at the Loyola
University New Orleans College of Law.
1. This essay draws on and updates my prior research on subprime mortgage finance. See
generally Christopher L. Peterson, Predatory Structured Finance, 28 CARDoZO L. REV. 2185
(2007), available at http://papers.ssm.com/sol3/papers.cfm?abstractid=929 118.
2. Richard Scott Carnell, Handling the Failure of a Government-Sponsored Enterprise, 80
WASH. L. REV. 565, 630-31 (2005) (discussing perception of federal guarantee); David Reiss, The
Federal Government's Implied Guarantee of Fannie Mae and Freddie Mac's Obligations: Uncle
Sam Will Pick Up the Tab, 42 GA. L. REV. 1019, 1025 (2008) ([l]nvestors in Fannie and Freddie
securities would likely not have any legally enforceable claim of a guarantee against the federal
government should Fannie and Freddie default.); Press Release, Federal Housing Finance
Agency, Statement of FHFA Director James B. Lockhart (Sept. 7, 2008) (on file with author),
available at http://www.fhfa.gov/webfiles/23/FHFAStatement9708final.pdf (Therefore, in order
to restore the balance between safety and soundness and mission, FHFA has placed Fannie Mae
and Freddie Mac into conservatorship).](ViewImageLocal?handle=hein.journals/loyjpubil10&div=11&collection=&method=preview&ext=.png&size=3)
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Fannie Mae, Freddie Mac, and the Home Mortgage Foreclosure Crisis
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