Former GSE regulator James Lockhart is blaming Fannie Mae and Freddie Mac for encouraging poor underwriting standards during the housing bubble by not aggressively forcing their seller/servicers to buy back bad loans.

Despite regulatory pressure, "they were lax in forcing repurchases for fear of offending major customers such as Countrywide," Lockhart told the Financial Crisis Inquiry Commission late Friday.

The former Federal Housing Finance Agency (FHFA) director also testified that the government-sponsored enterprises encouraged lower underwriting standards in the subprime market by purchasing private-label subprime MBS.

He noted that the GSEs were under pressure to meet their affordable housing goals. HUD pushed the AH goals "too high," he testified, and the GSEs were afraid their supporters would turn against them if they failed to meet those goals.

"I believe that high affordable housing goals and the resulting political pressure compounded by the enterprises' drive for market share and short-term profitability were major reasons why they lowered their underwriting standards," he said. "I should point out that their underwriting standards remained higher than the general market."

Lockhart is currently vice chairman of W.L. Ross & Co., which has been making vulture fund-like investments in the mortgage market.

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