It's a Race to the Bottom between Fannie and Freddie.

April 27 (EIRNS) Between them, Fannie Mae and Freddie Mac issued 43% more securities backed by interest-only mortgages in the first quarter of 2007, as compared to the first quarter the year before, the Wall Street Journal reported April 27, citing the trade publication, Inside Alternative Mortgages.

You wonder, why would these so-called "government sponsored enterprises" sink $58.35 billion more into these risky loans, even as the sub-prime and Alt A mortgage market was collapsing? Clearly, the creeping bailout of the soon-bankrupt mortgage-backed-securities markets by Fannie Mae and Freddie Mac, began even before their announcements of April 17-18 that they would throw $35-40 billion more into that hole. (SeeLTCM-Type Emergency Bail-Out of Entire Mortgage Market.)

Spokesman for Fannie Mae and Freddie Mac baldly defended this lunacy to the Wall Street Journal, asserting their purchases are "targeted toward high credit-quality borrowers."