Activists Rap GSEs for Buying Subprime MBS

Consumer and civil rights activists are taking Fannie Mae and Freddie Mac to task for their purchases of subprime mortgage-backed securities and "profiting" from abusive lending practices.The two government-sponsored enterprises have lending guidelines so they don't purchase predatory loans directly from lenders, the Rev. Jesse Jackson testified Feb. 7 before the Senate Banking Committee. However, the president and founder of the Rainbow PUSH Coalition said Fannie purchases subprime securities that are "stripping working-class people of their precious home equity.... In short, Fannie Mae and other GSEs are doing through the back door what the law prohibits through the front door. This must change." Center for Responsible Lending chief executive Martin Eakes maintained that Fannie and Freddie are "supporting and condoning lenders who market abusive, high-risk loans" through their investments in the senior tranches of subprime MBS. The GSEs should not get credit toward their affordable housing goals by "investing in loans that generate massive foreclosures," Mr. Eakes said in his testimony. The two GSEs purchased about 25% of the total subprime MBS sold in the first nine months of 2006, according to the CRL.