The most "unfair" loans made to subprime borrowers are ineligible to
be sold to the GSEs (i.e., Fannie and Freddie).  For example, Fannie's
charter has very strict rules on the types of loans it is legally
allowed to purchase.  In general, the loans with terms that made them
virtually impossible for the borrower to repay were not sold to the
GSEs.

However, there is one area where I believe Fannie and Freddie have
been involuntarily forced to provide funding for mortgages with a high
probability of forclosure.  Both GSEs have to fulfill their HUD goals,
including goals regarding affordable housing.  Each year Fannie and
Freddie are forced to purchase a higher percentage of "affordable"
mortgages.  These "affordable" mortgages are frequently mortgages sold
to subprime borrowers with interest rates that are obviously higher
than those charged to prime borrowers.

Fannie and Freddie don't have an option to disregard their HUD goals.
Their regulator, OFHEO, ensures they meet all of their HUD
requirements.  In times of market turmoil, such as today, Fannie and
Freddie must step up and provide funding to make mortgage funding more
available and affordable, especially to minority and disadvantaged
borrowers.  However, stringent HUD goals are causing Fannie and
Freddie to fund an excess amount of mortgages for home buyers that are
unlikely to be able to make their mortgage payments.