Mortgage Market Bound by Major U.S. Role
The government’s newly dominant role — nearly 90 percent of all new home loans are funded or guaranteed by taxpayers — has far-reaching consequences for prospective home buyers and taxpayers.
Some people who are no longer eligible for loans elsewhere have turned to the Federal Housing Administration [FHA], which does not demand top-notch credit scores or sizable down payments. There is growing evidence that many loans being guaranteed by the government have a significant risk of defaulting. Delinquencies are spiking. And the FHA is quickly eating through its financial cushion as losses mount.
The outlay has already reached about $1 trillion over the past year and is rising. During that time, the government has pumped more money into the mortgage market than has been spent on Medicare or Social Security or the defense budget, more even than Washington has paid to bail out banks and other struggling companies.
All told, the government now stands behind 86 percent of all new home loans, up from about 30 percent just four years ago, according to Inside Mortgage Finance. Taxpayers could be hit with a staggering tab even if a small proportion of loans go bad. Fannie and Freddie now own or guarantee more than $5 trillion in home loans. (That equals two-thirds of the debt the U.S. government owes.)