how the government caused the financial crisis

By 2008, before the US financial crisis began in earnest, 28 million

subprime loans were outstanding in the United States—half of all US

mortgages—and 74 percent of them were on the books of government agencies or

government-backed or -regulated entities.

In 2009, one in four taxpayers

itemized mortgage interest,

accounting for about two-thirds of

the mortgage interest paid by all

borrowers.

1986 1999 2007

Since 1986, residential

mortgage debt has

increased from 39

percent of gross

domestic product to

50 percent in 1999 and

then to 75 percent in

2007.

During 2003, equity

extraction totaled $400 billion, with over $700

billion extracted in each of 2004 and 2005.

The average U.S.

homeowner has

less than 7

percent equity in

the home. As

recently as 1990, U.S.

home equity was 45

percent.

By 2008, before the financial crisis,

Fannie and Freddie . . . either held

or had guaranteed 13.4 million

subprime or other nonprime

mortgages; the government as a

whole . . . held or had insured over 20

million similar nonprime mortgages.

This amounted to 74 percent of the

28 million nonprime mortgages

present in the U.S. financial system

before the financial crisis.

In 1989, only 1 in 230 homebuyers bought a

home with a down payment of 3

percent or less, but by 2003 1 in 7 buyers

was providing a down payment at that level, and

by 2007 the number was less than 1 in 3.

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

43%

8%

The FHA has increased its market share

of home purchase loans, from 8 percent in 2007

to 43 percent in 2010.

In 2006, 20 percent of all originations were subprime mortgages and about

three-quarters of these were securitized.

Underlying the giant housing

bubble that drew private

institutions in was a government

investment that in 2008 consisted

of 20.4 million subprime and other

risky loans—about three times the size of the PMBS market.