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Guaranteed to Fail by Lawrence J. White, Viral V. Acharya, Stijn van Nieuwerburgh, Matthew Richardson

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TICKING TIME BOMB

“We didn’t really know what we were buying,” said Marc Gott, a former director in Fannie’s loan servicing department. “This system was designed for plain vanilla loans, and we were trying to push chocolate sundaes through the gears.”

—Charles Duhigg, New York Times, October 5, 2008

On October 28, 1992, President George H. W. Bush signed into law H.R. 5334, The Housing and Community Development Act of 1992. As described in chapter 1, Title XIII of the law, the Federal Housing Enterprises Financial Safety and Soundness Act (FHEFSSA), created rules for the two largest government-sponsored enterprises (GSEs), Fannie Mae and Freddie ...

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