Editor’s note: This post originally appeared in National Mortgage News.
For an economics professor who has made the causes of the housing collapse a central issue in his political campaign, David Brat sure doesn’t sweat the details.
During the run-up to his surprise victory against House Majority Leader Eric Cantor in the Virginia Republican primary, Brat repeatedly blamed the 2008 crisis on Fannie Mae and Freddie Mac. That’s a well-known, if hotly debated, interpretation of history.
But Brat exaggerates the already-disputed data of the American Enterprise Institute purporting to show the government-sponsored enterprises’ culpability for the collapse. He also appears to miss the distinction between lenders that originate mortgages and secondary market participants like Fannie and Freddie.
Brat has claimed many times on the campaign trail that the GSEs were responsible for the overwhelming majority of subprime originations during the housing bubble. He typically makes this assertion using generic terms like “made” or “went through” to describe the GSEs’ role in mortgage lending.
“Fannie and Freddie made two-thirds of all subprime mortgages. That is not a free market institution,” he said in a Fox News interview the evening of the primary election. “That entity, along with the Fed printing too much money back in ’03 and ’04, caused the housing collapse.”
In a campaign speech, Brat suggested that the GSEs had completely disintermediated the banking industry by granting loans directly to borrowers (which would mean that every lender’s nightmare from the late 1990s had come true).
“The recent financial crisis, where did it start? In the housing market. We all know basically, probably the primary cause is located in Fannie and Freddie,” he said. “American Enterprise Institute estimates 70% of all subprime loans went through Fannie and Freddie. Instead of who? Instead of through your banker. So we’re putting bankers out of business. Bankers aren’t doing banking. In the past, bankers actually had to check your credit if you wanted a mortgage. Today, they don’t and Fannie and Freddie, they just say ‘here, here’s a mortgage.'”
Obviously, bankers still check applicants’ credit, even when they plan to sell the mortgage to Fannie or Freddie, which do not originate loans and must acquire them from banks and other lenders.
Brat’s campaign did not respond to requests for comment. But at a March campaign appearance, Brat also discounted banks’ role in the origination process.
“Seventy percent of all subprime loans didn’t go through bankers,” he said. “Bankers, their job is to do risk. Fannie and Freddie, is their job to do risk? Or to put the risk on your back?”
Brat is by no means the first political candidate to misconstrue Fannie and Freddie’s role in the mortgage industry. However, the murky wording of his remarks contrasts with Brat’s claims that he was driven to run for office because of the government’s handling of the financial crisis.
“What motivated the race for me was after the financial crisis, right, we had Fannie and Freddie collapse, the housing market, then the financial sector tanks,” he has said. “And I thought surely our political leaders now — you know, we’re on our knees economically. We’ll learn some lessons and get it right, and they didn’t. We’re still in roughly the same mess.”