Freddie Mac’s and Fannie Mae’s Relationship With Countrywide Raises Eyes

One of the big questions that has been asked in the aftermath of the housing meltdown has always been, how did things get so out of control? New information coming out of Washington shows that Fannie Mae was aggressively pushing Countrywide to sell it more loans, no matter the quality.

Yes, you heard me right. The “quasi” government agency developed plans to court the poster child of bad lending, Countrywide, to sell it more and more loans going forward. They drew up plans to achieve this goal according to a new New York Times article.

Nine bullet points fall under the heading “Fannie Mae’s Top Strategic Business Objectives With Lender.” The first: “Deepen relationship at all levels throughout CHL and Fannie Mae to foster alignment and collaboration between our companies at every opportunity.” (CHL refers to Countrywide Home Loans.) No. 2: “Create barriers to exit partnership.” Next: “Disciplined Risk/Servicing Management” and “Achieve Fannie Mae Profitability Goals.”

And as the late great Billy Mays said, but that is not all. To understand the rot in the system and the pressure coming down from Freddie Mac and Fannie Mae, think of this. 26–28 percent of all their loan buying activity came from Countrywide during the peak of the bubble. And they were pressuring Countrywide to sell them more and more loans.

Outwardly, Fannie and Freddie wrapped themselves in the American flag and the dream of homeownership. But internally, they were relentless in their pursuit of profits from partners in the mortgage boom. One of their biggest and most steadfast collaborators was Countrywide, the subprime lending machine run by Angelo R. Mozilo.

Countrywide was the biggest supplier of loans to Fannie during the mania; in 2004, it sold 26 percent of the loans Fannie bought. Three years later, it was selling 28 percent. What Countrywide got out of the relationship was clear — a buyer for its dubious loans. Now the taxpayer is on the hook for those losses.

To be honest, it is amazing how we are not in even worse shape than we are with this malfeasance coming out of Washington. The biggest question is why are we continuing to subsidize Freddie Mac and Fannie Mae?

Would there not be a better alternative that is not as full of institutional rot than these two companies? At what point do the termites so destroy the house that it is better to bulldoze than to try to repair the damage. Or are we afraid to see the true damage a bulldozer would uncover?

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