Like so many “experts” critiquing the role of the GSEs in the lingering financial crisis, New York Times columnist Joe Nocera appears to suffer from selective amnesia.  

In his column today, Nocera attempts to dispel the notion that Fannie Mae and Freddie Mac ‘caused’ the mortgage crisis by introducing a theory that the GSEs "got into subprime mortgages, with great trepidation … in 2005 and 2006 … only because they were losing so much market share to Wall Street." 

Take a trip down to the morgue, Joe.

In September 1999, the paper for which Nocera now writes reported that Fannie Mae was bowing to pressure from the Clinton administration and the banking industry to ease the credit requirements on loans it would purchase as part of a new national effort to expand homeownership amongst low- and moderate-income people.  

In an incredible display of poor judgment, the new national policy was to have Fannie act as repository of increased lending to so-called subprime borrowers whose incomes, credit ratings and savings were not good enough to qualify for conventional mortgage loans.  

In other words, it was now OK for banks, thrifts and mortgage companies to make long-term mortgage loans to people who could not afford them under credit guidelines that had proven themselves reliable over generations, because the loans could be off-loaded to a government-backed corporation.

The 1999 article observed that, “In moving, even tentatively, into this new area of lending, Fannie Mae is taking on significantly more risk, which may not pose any difficulties during flush economic times.  But, the government-subsidized corporation may run into trouble in an economic downturn, prompting a government rescue similar to that of the savings and loan industry in the 1980’s.”

Later in the article, Peter Wallison, then a resident fellow at the American Enterprise, made this prophetic observation: “If they fail, the government will have to step up and bail them out the way it stepped up and bailed out the thrift industry.”  

So the future of institutionalized, imprudent mortgage lending to people who could not otherwise afford the loans was foretold in 1999. The inevitable collapse materialized in 2007 when borrowers could no longer make the payments. Regulators woke up to the problem in 2008. And, the Dodd-Frank Act of 2010 did virtually nothing to change the system.     

In the final irony, the legislation designed to correct the excesses that caused the financial crisis bears the names of two of President Clinton’s Congressional minions who helped to push Fannie Mae into the imprudent lending scheme that precipitated the financial crisis in the first place.  

Jim Wells is the president of Wellspring Consulting International Inc. in Fort Lauderdale.