by Calculated Risk on 4/09/2010 11:03:00 AM

From Ron Orol (updated) at MarketWatch: Fannie Mae official: We were surprised by extent of crisis. First the obligatory "no one saw it coming" comment:

"Few if any predicted the unusual and rapid destruction of real estate values that occurred," Robert Levin, former Executive Vice President and Chief Business Officer of Fannie Mae told a financial crisis inquiry panel.

"In hindsight, if we and the industry as a whole had been able to appreciate the nature and extent of the crisis, it is clear we all would have conducted our business differently during this period, but we like everyone else were surprised by the unprecedented extent of the economic crisis."

And the real argument:

During the build up to the financial crisis the two entities were hybrid public private entities - so-called government-sponsored entities -- that had goals of increasing their stock price and competing with Wall Street at the same time as they met low-income housing goals set by the Department of Housing and Urban Development

Levin and Mudd argued that in a key period, in 2005 and early 2006, the dollar volume of private label mortgage securities issued by Wall Street outpaced mortgages securities issued by Fannie Mae, Freddie Mac and Ginnie Mae combined.

Yes, the worst loans - by far - were in the private label MBS issued by Wall Street. But the Fannie and Freddie structure - that privatized profits and socialized losses - incentivized executives at Fannie and Freddie to compete with Wall Street.

Note: It is the one year anniversary of the comment section called "Hoocoodanode?" - (Who could of known?) - a running joke on this blog for several years. Thanks to Ken for the awesome site - and to all the great contributors in the comments. Try it out!