Karl Smith has read the just-released Conservator’s Report on Fannie and Freddie and has a detailed post summarizing it. His conclusion:
The wave of housing price increases was kicked off by changes in private label securitization. These changes left Fannie and Freddie with a smaller market share and lower absolute level of securitizations. Fannie and Freddie attempted to adjust their basic business practices to stay competitive in bubble markets and among aggressive borrowers.
These adjustment left Fannie and Freddie exposed to a large decline in housing prices. This is exactly what happened and Fannie and Freddie reaped enormous losses because of their exposure.
Had Fannie and Freddie stuck to their traditional role of guaranteeing low value traditional loans rather than trying to stay competitive in bubble areas their losses would have been substantially less.
In short, attempting to subsidize the American dream for low and moderate income families may be a fundamentally bad policy. However, it does not appear to be either the origin of the housing bubble or the source of Fannie and Freddie’s trouble.
Read the whole thing for the full story. Overall, it really does seem like the right take to me. Fannie and Freddie obviously made huge mistakes that are going to cost the taxpayers a boatload of money, but the evidence just doesn't support the idea that they helped provoke the housing bubble. They were followers, not leaders. It was Wall Street that lit the fuse, not Fannie and Freddie.