From the Financial Crisis Inquiry Report:
“Fannie Mae executives also saw an opportunity to make money. Because there was less competition, the GSEs could charge higher fees for guaranteeing securities and pay less for loans and securities they wanted to own, enabling them (in theory) to increase returns. Tom Lund, a longtime Fannie Mae executive who led the firm’s single-family business, told the FCIC that the market moved in Fannie Mae’s favor after
SEPTEMBER: THE TAKEOVER OF FANNIE MAE AND FREDDIE MAC
August as competitors dropped out and prices of loans and securities fell. Lund told FCIC staff that after the liquidity shock, Fannie had “more comfort
that the relationship between risk and price was correct.” Robert Levin, the company’ chief business officer, recalled, “It was a good time to buy.”
The GSEs were in the perfect position. The Big Banks had changed the rules of the game mid-stream and were about to get crushed under the weight of their own mistakes. The GSEs were about to do what they were designed to do–swing into action as everyone else abandoned the field. But this was inconvenient to the Big Banks. They couldn’t just leave the field with catastrophic losses of their own creation. The GSEs were about to wipe them off the field in the mortgage market and the banks knew it. The GSEs were in fantastic shape. And the Big Banks were about to get vanquished. Paulson didn’t rescue Fannie and Freddie. He arrested them at their moment of triumph, reversed the spigot, crushed the GSEs at their moment of victory, and handed the game to the Big Banks.