TESTIMONY SUSAN M. WACHTER: “THE FINANCIAL CRISIS AND THE ROLE OF THE GSES”

“THE FINANCIAL CRISIS AND THE ROLE OF THE GSES”

Testimony prepared for

“FANNIE MAE AND FREDDIE MAC: HOW GOVERNMENT HOUSING POLICY FAILED HOMEOWNERS AND TAXPAYERS AND LED TO THE FINANCIAL CRISIS”

ON MARCH 6TH, 2013

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BEFORE THE SUBCOMMITTEE ON CAPITAL MARKETS AND GOVERNMENT-SPONSORED ENTERPRISES U.S. HOUSE OF REPRESENTATIVES

WRITTEN TESTIMONY SUSAN M. WACHTER Richard B. Worley Professor of Financial Management Professor of Real Estate and Finance The Wharton School University of Pennsylvania 3733 Spruce Street 430 Vance Hall Philadelphia, PA 19104

Government housing policy failed homeowners and taxpayers and it is important to understand why. The GSEs contributed to the meltdown. The direct cause of the crisis was the proliferation of poorly underwritten and risky mortgage products. The majority of these products, and the most risky products, were funded through private label securitization.