Housing Guy Apologizes For Housing Bubble : Planet Money Fannie Mae and Freddie Mac have worked for decades to help more Americans become homeowners. Now, a former employee wants to apologize for doing such a good job of fulfilling that mission.
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Housing Guy Apologizes For Housing Bubble

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Housing Guy Apologizes For Housing Bubble

Housing Guy Apologizes For Housing Bubble

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Two years ago, the government took over mortgage giants Fannie Mae and Freddie Mac. Now, we have a number for how much that move could ultimately cost taxpayers. It's in the neighborhood of $154 billion.

Fannie Mae and Freddie Mac have worked for decades to get more Americans to become homeowners, for better or worse. Well, today, a former Freddie Mac employee would like to say he's sorry for doing such a good job fulfilling that mission.

To introduce us, here are NPR's Adam Davidson and Chana Joffe-Walt from our Planet Money Team.

CHANA JOFFE-WALT: Jacob Kosoff will be delivering our apology today. We met him in kind of a strange way.


ADAM DAVIDSON: Yeah, he was mad at me. A few weeks ago, I did a Planet Money story on "This American Life." I interviewed a bunch of people who work on Wall Street, and I could not find anybody to say two things. Number one: Thank you, America. Thank you for bailing out my industry and probably saving my job. And, number two: I'm sorry. I'm sorry for whatever small role I played in this financial crisis.

Nobody that I found would say either.

JOFFE-WALT: And that is when Kosoff got in touch.

Mr. JACOB KOSOFF (Former Economic Analyst, Freddie Mac): I guess I was a little annoyed that you didn't mention some people were grateful and apologetic.

JOFFE-WALT: Some people like Kosoff. Kosoff who used to work at Freddie Mac and now he works at a bank. He wants to, number one, Adam, apologize. And number two, say thank you. He wants each and every one of you listening to know that he is grateful.

Mr. KOSOFF: I am. Thank you for the government money for Freddie Mac, which I think kept me employed. Thank you for the general bailout, which I think helped all financial firms.

DAVIDSON: Okay, now, to the apology. Kosoff used to work at Freddie Mac as an economist in the Mission Department, as in their job was to promote the mission of homeownership.

Mr. KOSOFF: Oh, I think I was putting people in housing that wouldn't be in housing, that subprime mortgages were great in that they were helping people that were low income that normally couldn't afford to buy a house. And I was very supportive, and I thought subprime was the best thing in the world.

JOFFE-WALT: It was not until the spring of 2008, just months before Freddie would be bailed out by the federal government, that Kosoff began to question his most fundamental beliefs.

Mr. KOSOFF: It was the first time I thought maybe there could be some times ever in your life possibly that renting could maybe be better.

DAVIDSON: And then, one scary day, he got up the guts to say what he was thinking out loud in the office.

Mr. KOSOFF: You know, it was a bit like announcing like, oh, there is no God, like the idea that housing was like God. It was like, of course, it goes up. Of course, it's a great deal. Buying is always better. Listen to your mom, listen to your minister, listen to the government, listen to, you know, politicians. Everyone says its better.

JOFFE-WALT: So Kosoff is sorry he didn't realize earlier that homeownership sometimes is not such a great idea.

When he thinks about it, there's something very specific he could have done.

DAVIDSON: Like a FreddieMac.com, dot-org? Or what is it...

JOFFE-WALT: Kosoff takes us to an online calculator. He didn't make it, but while at Freddie Mac, he managed it. And at the top, there's a question in bright orange letters: Am I better off renting?

DAVIDSON: You plug in some numbers, what's your rent, what do you think is going to happen with house prices.

Mr. KOSOFF: Okay, I think house prices will fall negative 1 percent. It will say appreciation rate, try to type in negative 1 percent there.

DAVIDSON: Negative one.

Mr. KOSOFF: And then click calculate.

DAVIDSON: Get your results. Okay. Please fix following errors, appreciation rate must be a number between zero and 100.

JOFFE-WALT: That right there - that is what Jacob Kosoff is sorry for.

Mr. KOSOFF: So I should have fixed that.

(Soundbite of laughter)

Mr. KOSOFF: I think I should have worked harder to get that resolved. Sorry.

JOFFE-WALT: You are sorry that you didn't allow for the possibility that home prices go down.

Mr. KOSOFF: Yes. I'm sorry that I didn't, you know, send an email or work a little harder to get that fixed, so the calculator will allow for the possibility of reality.

JOFFE-WALT: Kosoff has no idea, but he imagined maybe some people could have used that calculator to come to a very bad decision: to buy an overpriced house with a subprime mortgage when they should have just rented.

DAVIDSON: Now, we ran all of this by a spokesperson for Freddie Mac, and he said three things. Number one: They're aware of this problem with the calculator, and they're working with their outside vendor to fix it. Number two: They don't believe that anybody should make a major decision, like whether or not to buy a house, based solely on an online calculator. And number three: Freddie Mac believes that renting is a very good option for lots and lots of Americans, and they put a lot of money into that effort.

I will say that, at least as of right now, the calculator is still on their website, still not allowing for the possibility of home prices to fall.

I'm Adam Davidson.

JOFFE-WALT: And I'm Chana Joffe-Walt, NPR News.

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