Fannie Mae and Freddie Mac, the "Government-Sponsored Enterprises" (GSEs) that hold or guaranty over half of all mortgages in the U.S., were the primary or at least two of the primary actors in driving up home prices and driving mortgage lending standards downward, causing the financial crisis. Their leadership maintains the companies did not significantly lead the market into the subprime housing crisis but were rather victims of the bursting of a historic housing bubble. Both Fannie Mae and Freddie Mac maintain they did not purchase a significant share of default-prone subprime and Alt-A mortgages. However, this is at best mistaken and at worst disingenuous and purposely misleading.

Fannie and Freddie manipulated their definition of "subprime" to accommodate the progressive lowering of their underwriting standards. This allowed them to engage in a "race to the bottom" with Wall Street and subprime mortgage brokers, lowering their underwriting standards and backing as much as $1.6 trillion in risky mortgages.

Incredibly, in meetings with Committee staff, representatives of both companies said the GSEs defined a subprime mortgage as, "anything that was not prime" while a prime mortgage was, "anything that was not subprime". Fannie Mae only called a mortgage it purchased "subprime" if the originator identified itself as a "subprime lender". Extending this logic, presumably if a mortgage lender made risky loans that were by definition "subprime", but called them "prime", then that was good enough for Fannie and Freddie. If true, this would represent an astonishing abnegation of the GSEs’ long- standing responsibility to maintain high underwriting standards. Instead, Fannie and Freddie gave the green light to subprime lenders, backing risky mortgages that would eventually cause the financial crisis.