Feds to Back Risky Home Loans Again

Critics warn that Fannie and Freddie are setting up housing market for repeat of 2008 crisis

Critics warn that government agencies are making the same mistakes that led to the economic downturn of 2008.

Federal agencies have made a series of recent moves that could precipitate another housing crisis similar to the one in 2008, experts say, again threatening the stability of the entire U.S. economy.

Housing regulators and other agencies have announced rulings and proposals in recent weeks that would lower credit and lending standards for home mortgages. Subprime or low-quality mortgages that defaulted in 2008—a majority of which were backed by the government housing giants Fannie Mae and Freddie Mac—were a significant contributor to the economic downturn.

Additionally, Fannie and Freddie currently hand over most of their earnings to the Treasury Department under changes made by the agency in 2012. That means that as home loans become more risky, the companies known as government-sponsored enterprises (GSEs) would have no capital buffer to absorb losses. Taxpayers could again be called upon to rescue them in the event of another economic shock.

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