WASHINGTON — Two former Fannie Mae executives said Friday that competitive pressures, combined with the political goal of increasing homeownership, were to blame for the company’s decision to back riskier mortgages that fueled the housing bubble.
Daniel Mudd, Fannie Mae’s former chief executive, and Robert Levin, the company’s former chief business officer, testified before a panel examining the roots of the financial crisis. Both executives left Fannie Mae after it was seized by regulators in fall 2008.
Just before the housing bust, Fannie Mae executives worried that the mortgage finance company was becoming irrelevant. Wall Street firms had muscled into the mortgage-backed securities business and were stealing its market share, according to a July 2005 internal presentation disclosed by the panel.
While executives were aware of “growing concern about housing bubbles,” the presentation said, they also feared the company could come a “niche player” amid competition from Wall Street.
“Could we really sit out?” Levin told the panel. “Would we be permitted to sit out? That’s what we were grappling with.”
Short-term concerns ultimately prevailed, and Fannie dived increasingly into riskier loans, like those that didn’t require proof of income.
