Fannie & Freddie dealt in conforming loans, which require a lot of documentation, whether the borrower was prime or subprime. Fannie and Freddie had sold bundles of mortgages to investors for decades without any problem, they were a reliable and boring source of income investment for retirement funds, insurance companies, banks.
Liar loans were developed by F&F’s non-GSE rivals. No Doc, OptionARM, NINJA, all the exotic non-conforming paper commanded a higher interest rate than the conforming GSE paper, and that’s what Wall Street investment banks and hedge funds wanted and funded through an army of private mortgage brokers.
The Wall Street IBs and hedgies wanted all the subprime paper for the purpose of using the mortgages as fodder for the creation of derivatives. The derivatives they created were more exotic and higher yielding than the dull GSE paper. While it’s great political hay to place the financial crisis at the feet of Fannie and Freddie and the CRA the evidence doesn’t support that claim. They were big participants if for no other reason than because of their sheer size as the original secondary market for mortgage paper, but they weren’t the reason we had the bubble.
Then why did they need a federal takeover? Why were they delisted? Of course, freaks that they are, they never should have been listed in the first place.
Fannie and Freddie's government backing allowed them to set the stage for the irrational exuberance
that lead to the crisis. And their 'Rat protectors in the House and Senate prevented efforts to get them under control because that might have made house ownership less available to the typical Democrat voter.