the us government's role in building and bursting the housing bubble
TRANSCRIPT
In 1993 the FHA began to increase the percentage of its loans that involved
down payments of less than 3 percent.
13% in 1992
28% in 1996
50% in 2000
Standards lowered for approving mortgage loans
In 1989, only 1 in 230 homebuyers bought a home with a down payment of 3 percent or
less. In 2003, that ratio was 1 in 7. By 2007, it was 1 in 3.
Buying made easy
In 2009, one in four taxpayers itemized mortgage interest, accounting for about two-thirds of the mortgage interest paid by all borrowers.
Tax deductions encourage oversized mortgages
To expand ownership to homebuyers with shaky credit, government
increasingly has backed subprime and nonprime mortgages. By 2008,
Fannie and Freddie alone held or insured 13.4 million of them while
overall, government and its entities guaranteed more than 20 million.
Government doubles down
Government investment in 20.4 million subprime and other risky
loans is about three times the size of the private mortgage-
backed securities market.
Inflating the bubble
In 2003, homeowners cashed out equity in
their homes to the tune of $400 billion. Equity extraction was worth
more than $700 billion in both 2004 and 2005.
Homeowners take the money and run
The average US homeowner has less than 7 percent equity in his or her home. As recently as 1990, US home equity was 45 percent.
Not much left to bank
43%
8%
The Federal Housing Administration has increased its market share of home purchase loans, from 8 percent in 2007 to 43 percent in 2010.
Government ups its skin in the game
1986 1999 2007
In 1986, residential mortgage debt accounted for 39 percent of gross domestic product. In 1990, mortgage debt was 50 percent of GDP. In 2007, it was 75 percent.
Debt’s climb as a percent of GDP
By 2008, half of all mortgages in America — 28 million — were subprime or nonprime loans. Seventy-four percent of them were guaranteed by government or government-agencies
Government is left holding the bag