The detailed time-line of events below demonstrates that the collapse of Fannie Mae and Freddie Mac was preventable if Congress were more receptive and responsive to the warnings of expert analysis.
In 1938, Fannie Mae was established by an act of Congress to provide liquidity to the mortgage market during an economic crisis known as the Great Depression.
In 1970, over three decades later, Freddie Mac was established by an act of Congress to counteract Fannie Mae's growing monopoly of the secondary mortgage market.
In 1977, the Carter Administration passed the Community Reinvestment Act that required banks to offer an even disbursement of credit throughout the financial market in an attempt to curb past lending practices that targeted more desirable markets. At the time, republican critics charged that such an act would impose unnecessary regulatory burdens on lending institutions and distort credit markets by forcing banks to offer loans to under-qualified applicants.
In 1995, the Clinton Administration pushed even harder to increase the supply of affordable housing to low-income families by offering performance-based incentives. According to economist Stan Liebowitz, these developments led to a loosening of lending standards that required no verification of income or assets, little consideration of the applicant's ability to make payments, and no down payment payments. The net effect was an inevitable collapse of Fannie Mae and Freddie Mac at the cost of its investors.
In April of 2001, the Bush Administration first red flagged Fannie and Freddie stating that "financial trouble of a large GSE could cause strong repercussions in financial markets, affecting Federally insured entities and economic activity."
