In his latest Bloomberg op-ed, FCIC Commissioner echoes his perjured testimony, wherein he claimed that the Commission ignored the discredited analysis of his colleague at the American Enterprise Institute.
The FCIC "never investigated what information about Fannie and Freddie’s loans was available at the time," writes FCIC Commissioner Peter Wallison in an op-ed piece for Bloomberg. It's a new slant on the same lies he put forth in his written dissent and in his prepared testimony before Congress. Those lies could not be more obvious, and they provide the foundation for his dishonest claims about the mortgage crisis. Specifically, he claims that the FCIC refused to examine the loan data on the GSEs and the research and analysis of his colleague at the American Enterprise Institute, Edward Pinto. Pinto claims that subprime and Alt-A loans constituted half of the total loans outstanding, and that a big share of those loans were held or guaranteed by Fannie and Freddie. Wallison writes:
Any objective investigation of the causes of the financial crisis would have looked carefully at this research, exposed it to the members of the Commission, taken Pinto’s testimony, and tested the accuracy of Pinto’s research. But the Commission took none of these steps. Pinto’s research was never made available to the other members of the FCIC, or even to the commissioners who were members of the subcommittee charged with considering the role of housing policy in the financial crisis.
Accordingly, the Commission majority’s report ignores hypotheses about the causes of the financial crisis that any objective investigation would have considered, while focusing solely on theories that have political currency but far less plausibility.
Let’s count the lies:
1. The FCIC did look carefully at Pinto’s research;
2. The FCIC did question Pinto at length and accept all his submissions;
3. The FCIC did test the accuracy of Pinto’s research, and
4. Pinto’s research was made available to all members of the FCIC.
5. The FCIC considered and debunked Pinto's claims, and detailed the process in its report, on page 219 and elsewhere.
In a nutshell, Pinto claimed that there were about 27 million subprime and Alt-A loans, something close to half the national total. He also claimed that about 12 million of those high risk loans were held by Fannie and Freddie. He came up with these numbers by using definitions of "subprime and "Alt-A" that were unique to Pinto alone. The FCIC uncovered a glaring disconnect between actual delinquency rates and Pinto's categorizations. When it came to actual performance, there was almost no overlap. "High risk" loans held by the GSEs had serious delinquency rates that had only 1/4 the delinquency rates of subprime loans (using everyone else's definition) and 1/3 the delinquency rate of traditionally defined Alt-A loans. For context, the GSEs' "high risk" loans had a serious delinquency rate that was below the 6.3% national average at the time.
The FCIC writes:
In written analyses reviewed by the FCIC staff and sent to Commissioners as well as in a number of interviews, Pinto has argued that the GSE loans that had FICO scores below 660, a combined loan-to-value ratio greater than 90%, or other mortgage characteristics such as interest-only payments were essentially equivalent to those mortgages in securitizations labeled subprime and Alt-A by issuers.
Using strict cutoffs on FICO score and loan-to-value ratios that ignore risk layering and thus are only partly related to mortgage performance (as well as relying on a number of other assumptions), Pinto estimates that as of June 30, 2008, 49% of all mortgages in the country—26.7 million of them—were risky mortgages that he defines as subprime or Alt-A. Of these, Pinto counts 11.9 million, or 49%, that were purchased or guaranteed by the GSEs. In contrast, the GSEs categorize fewer than 3 million of their loans as subprime or Alt-A.
Importantly, as the FCIC review shows, the GSE loans classified as subprime or Alt-A in Pinto’s analysis did not perform nearly as poorly as loans in non-agency subprime or Alt-A securities. These differences suggest that grouping all of these loans together is misleading. In direct contrast to Pinto’s claim, GSE mortgages with some riskier characteristics such as high loan-to-value ratios are not at all equivalent to those mortgages in securitizations labeled subprime and Alt-A by issuers. The performance data assembled and analyzed by the FCIC show that non-GSE securitized loans experienced much higher rates of delinquency than did the GSE loans with similar characteristics.
In addition to examining loans owned and guaranteed by the GSEs, Pinto also commented on the role of the Community Reinvestment Act (CRA) in causing the crisis, declaring, “The pain and hardship that CRA has likely spawned are immeasurable.”
Contrary to this view, two Fed economists determined that lenders actually made few subprime loans to meet their CRA requirements. Analyzing a database of nearly 14 million loans originated in 2006, they found that only a small percentage of all higher cost loans as defined by the Home Mortgage Disclosure Act had any connection to the CRA. These higher-cost loans serve as a rough proxy for subprime mortgages. Specifically, the study found that only 6% of such higher-cost loans were made to low- or moderate-income borrowers or in low- or moderate-income neighborhoods by banks and thrifts (and their subsidiaries and affiliates) covered by the CRA.
Rather than defend Pinto’s claims, or challenge the FCIC analysis on its merits, Wallison lied about what happened, in order to defame his fellow commissioners and to taint the report as being "partisan." Whatever their sentiments, the other Republican members of the Commission dare not sign on to his dissent, for one obvious reason. They, like Wallison, would be subject to criminal prosecution under 18 U.S.C. Section 1001, which applies to:
“…whoever, in any matter within the jurisdiction of the executive, legislative, or judicial branch of the Government of the United States, knowingly and willfully—
(1) falsifies, conceals, or covers up by any trick, scheme, or device a material fact;
(2) makes any materially false, fictitious, or fraudulent statement or representation; or
(3) makes or uses any false writing or document knowing the same to contain any materially false, fictitious, or fraudulent statement or entry;
shall be fined under this title, imprisoned not more than 5 years…”
Apparently, Wallison isn't worried about being prosecuted or even disbarred. He has made a career out of deceiving the public with his bogus claims about "27 million loans, or half of all U.S. mortgages, [that] were subprime or otherwise risky." In Bloomberg he writes, "Had those 12 million Fannie Mae and Freddie Mac loans been prime instead of subprime, delinquencies and defaults probably would have been around 2 percent, not almost nine times higher." The delinquency rates of the Pinto-designated subprime and Alt-A loans were 6.2% and 5.7%, about three times higher.
It's too bad that Bloomberg gives this guy a platform for promoting his dishonesty.