Fannie's CEO: Lenders Threw Prudence Out the Window

The head of a giant government-sponsored securitizer of home mortgages doesn't expect to see relief from the housing malaise until the end of the decade.

"This year will be a tough year, and 2009 will be similar, but we will start to see recovery and growth in 2010," said Daniel Mudd, CEO of Fannie MaeFNM, speaking at the Society of American Business Editors and Writers annual conference in Baltimore, Md.

Mudd said that during the housing boom lenders had focused on affordability of mortgages rather than on prudence in trying to set people up to eventually own their homes.

He also said not to expect foreclosure rates to drop to zero, despite the return of "more prudent" lending practices.

"If nobody ever loses their home, then I probably haven't tried hard enough to stretch the lending standards," Mudd asserted. "Constantly finding that right level is what we try to do."

One of the characteristics of the housing boom was a proliferation of novel loan products that allowed borrowers to make low initial payments that would later skyrocket after the initial teaser period expired. For some borrowers, that payment "reset" has made making the full amount of the payment unaffordable. As a result, foreclosures have started to climb, rocking home prices and negatively impacting banks.

"Now, we need to get those foreclosed homes back into the market as soon as possible," he said.

That, together with a return of stability to the financial markets, will help normalcy return to the housing sector.