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Former Executive Vice President and Chief Business Officer of Fannie Mae Robert Levin, left, and former President and Chief Executive Officer of Fannie Mae Daniel Mudd testify during a hearing before the Financial Crisis Inquiry Commission on Capitol Hill in Washington, D.C. - 


Bob Moon: More finger-pointing on Capitol Hill today, this time, from former execs of mortgage giant Fannie Mae. They blamed a "flawed business model" for bringing them down. Now, since Congress created Fannie, and its twin Freddie Mac, it seems the blame game has come full circle.

Marketplace's Nancy Marshall Genzer reports from Washington.

Nancy Marshall Genzer: Fannie Mae and Freddie Mac had private shareholders, but they also had an implicit government guarantee and could borrow money cheaply. Fannie and Freddie bought up mortgages, giving banks more money to lend.

Former Fannie Mae CEO Daniel Mudd told the commission Fannie had an unsustainable business model. He was trying to please two masters, the government and his investors.

Daniel Mudd: I sought to balance the fine points of mission and business. That was no longer possible by Sept. 6, 2008 and I am sorry for that.

The government took over Fannie and Freddie in September of 2008. That's cost taxpayers more than $120 billion. So, blame the business model?

Financial analyst Ken Posner says that's fair. He says Fannie and Freddie were losing market share to private banks, who were snapping up subprime mortgages. Posner says Congress pressured Fannie and Freddie to jump into the subprime market.

Ken Posner: They felt they needed to do more to appease their congressional masters -- and doing more was fatal.

Boston University finance professor Mark Williams doesn't think Fannie and Freddie were victims of an unsustainable business model. He says they took advantage of cheap money to make risky bets.

Mark Williams: These executives at the top of Fannie and Freddie molded the model so they could gain greater profit for the company and ultimately, for themselves.

Now that unsustainable business model is history. Fannie and Freddie are essentially public with a blank check from Uncle Sam. Williams says that's definitely not sustainable.

In Washington, I'm Nancy Marshall Genzer for Marketplace.