Fannie Refused to Punish Countrywide for Bad Debt, Lockhart Says

“They didn’t want to offend their largest customer,” Lockhart, now the vice chairman at investment firm WL Ross & Co., said during a speech at a Mortgage Bankers Association conference in New York.

Trends in mortgage-repurchase demands are among “procyclical” issues in the market, or items that can lead to looser credit during a boom and tighten standards during tougher times, Lockhart said. Policy makers should strive to lessen the dynamic as they remake the housing-finance system, he said...