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73 December 2025 J O U R N A L themortgagepoint.com December 2025 » GREAT FINANCIAL CRISIS: HOW TWO MAJOR SOURCES OF RISK HAVE BEEN CONTAINED T he Great Financial Crisis (GFC) in 2008 was the most impactful financial collapse and economic downturn since the Great Depression of 1929-1939. It led to a long list of changes that included legislation and a host of revised and new regulations by the government. The GFC caused regulators, central bankers, and the financial industry itself to think deeply about the causes of financial instability and systemic risk that played a significant role in the crisis, according to the first of a two-part series from The Stoop, the NYU Furman Center Blog. Donald H. Layton, Senior Visiting Fellow at NYU, wrote in The Stoop that while those changes were numerous, they largely ignored Fannie Mae and Freddie Mac, two massive govern- ment-sponsored enterprises (GSEs) that it said were at the heart of the Great Financial Crisis. The blog said that neglect made sense because the Obama administration had intended that Fannie Mae and Fred- die Mac would be "wound down" and replaced by something Congress would create. That plan never materialized. Lay- ton is the former CEO of Freddie Mac. By about 2017, it was a prevailing view among policymakers that for the foreseeable future, F&F would continue to anchor the U.S. housing finance sys- tem. After all, The Stoop said, Congress was not focusing on a replacement, and also in part because of the two agencies' improved operating performance and risk profile. The Three Sources of Potential Financial Instability In the series' first part, The Stoop examines several of the system's weak- nesses that were rooted in a structure Congress created for the GSEs, and how that led to three specific sources of potential financial instability. Part 1 reviews how two of the three identified sources of financial instabil- ity—(1) the excessive concentration of mortgage interest rate and liquidity risk, and (2) significant undercapitalization— effectively have been contained, mainly via actions taken during conservator- ship, a major policy success that The Stoop said is rarely discussed in the industry or government. According to Layton, the third major risk that could lead to financial insta- bility for F&F is excessive concentration of mortgage credit risk, some of which remains unresolved despite advances made between 2013 and 2019. The Stoop said, in fact, it is heading in the wrong direction. Before the Great Depression, housing finance wasn't something the U.S. government took much interest in. However, starting in 1932, it began to play a significant role, and by the late 1930s, it was its dominant force. That's something it has since maintained, The Stoop said. Part 1 delves heavily into the federal government's reaction when it created a series of specialized financial institu- tions focused on residential mortgage lending. Those included savings and loans that were the mainstay of residen- tial mortgage lending in the immediate post-war decades; F&F, which assumed that role through the 1980s; the Federal Home Loan Banks (FHLBs); the Federal Housing Administration (FHA); the Fed- eral Savings and Loan Insurance Corp. (FSLIC), a counterpart to the FDIC; and others. Think of it as Congress creating a parallel banking system dedicated to residential housing finance. Its purpose was to allow homeown- ership policy to be implemented in a focused way and to effectively channel subsidies to "help homeownership." One type of subsidy was light capital requirements on the various specialized mortgage institutions that were created to make mortgages less expensive. By about 2017, it was a prevailing view among policymakers that for the foreseeable future, F&F would continue to anchor the U.S. housing finance system. After all, The Stoop said, Congress was not focusing on a replacement, and also in part because of the two agencies' improved operating performance and risk profile.