The worst mortgage defaulters are...

Rich people and investors.  I should have brought this up, but last weekend, the NYT had a great article explaining that, in fact, people who owe over $1,000,000 are the worst defaulters, by a wide margin, so far, in this current housing debacle.

Seeing as, at the time of origination of those loans, Fannie and Freddie had FHA conforming requirements of $417,000 (meaning they couldn't buy loans made for more than that amount), it's clear that Fannie and Freddie had no involvement with some of the worst defaulters.  Still, that does not shift blame away from either Freddie nor Fannie, from their involvement in the mortgage crisis.

But we also must understand that Freddie/Fannie play a crucial role in making conventional loans available to the average middle-income and lower-income household.  Because Freddie and Fannie buy loans in cash from banks, they provide the ability of those banks to continue to originate more loans, instead of tying up their capital.  Proof in point, in 2009, Freddie/Fannie owned 75% of all mortgages.  Without them, there would not be even a hint of a housing recovery, as banks are dealing with their own, privately held mortgages.

As much as they were a part of the problem, so are they also part of the solution.  Well that is, unless you believe that only free markets solve problems.