During the height of the mortgage boom, a thriving private-label MBS market "threatened" Fannie Mae financially, driving the congressionally chartered mortgage giant into the Alt-A market that ultimately led to huge credit losses at the company, a former top Fannie official told a congressional panel Friday.
The growth of the private-label securities market threatened Fannie "financially" along with its "relevance" to its seller/servicers, said former Fannie executive Robert Levin in testimony before the Financial Crisis Inquiry Commission.
Speaking before the same panel, former Fannie Mae CEO Daniel Mudd testified that the GSE gradually entered the Alt-A market and understood the risks. Fannie's Alt-A loans performed better "by a factor of two" than alt-A loans generated by the Wall Street conduits, Mudd said.
But FDIC chairman Phil Angelides noted that Alt-A, subprime and other high-risk loans caused 69% of Fannie's credit losses in 2009, even though they comprised only 24% of total loans. He also noted the GSE was highly leveraged. (At one point, Fannie's Alt-A holdings totaled $350 billion.) Mudd said the bulk of Fannie's alt-A loans were bought during the peak of the housing boom and their performance suffered as a result of declining house prices and the nation's economic downturn.
In September 2008 the Federal Housing Finance Agency seized control of Fannie, placing it into conservatorship. Upon the GSE's seizure, Mudd was fired.
In his opening remarks to the commission, Mudd said the GSE's business model and structure could not "withstand a multiyear 30% home price decline on a national scale, even without the accompanying global financial turmoil."