Behind every housing boom for the past 30 years is the government through the Federal Housing Administration using its government sponsored entities known as “GSE” (Fannie Mae, Freddie Mac, Housing and Urban Development) to expand the ability for middle and lower income borrowers to be able to buy mortgages that they wouldn’t be able to buy otherwise. This creates artificial demand as more potential buyers are placed into the market which as a result raises prices.
The increased prices result in a higher valuation of properties meaning the more people pay for their mortgage on each property, and the more people that own homes that are government sponsored the more potential revenue is created.
Ever notice how these housing booms always happen shortly after times of excess government spending? This is a good portion of how they pay for it. Mortgage debt is over 10 trillion today making it our largest debt market. The FHA insures 55% plus of that debt making it the worlds largest mortgage insurer. In addition, Fannie/Freddie service 55%+ of those loans collecting the interest on those mortgages. The more your home is worth the bigger your mortgage is and the more interest Fannie/Freddie make and the more people owning homes only increases exponentially more. FHA benefits through hiked mortgage insurance premiums and also has a 1.75% upfront mortgage premium for the total value of each loan.
Now you might ask how exactly does government cause housing prices to skyrocket?
Well first the government created the FHA in 1934 (a year after we went off the gold standard if that tells you anything) to offer federally backed insurance for home mortgages made by FHA approved lenders.FHA insurance protected approved lenders against losses on the mortgages they originated and gave those lenders confidence to lend to riskier borrowers since it was insured removing their risk. FHA insurance gave lenders added security and expanded the pool of potential homebuyers for whom lenders were willing to underwrite loans.FHA financed its operations through insurance premiums charged to borrowers and interest earned on its reserves.The FHA created the GSEs mentioned above for the sake of carrying this out.
“The FHA, or Federal Housing Administration, provides mortgage insurance on loans made by FHA-approved lenders. FHA insures these loans on single family and multi-family homes in the United States and its territories. It is the largest insurer of residential mortgages in the world, insuring tens of millions of properties since 1934 when it was created.”
“Since the early 1990s, the government has been attempting to expand home ownership in full disregard of the prudent lending principles that had previously governed the U.S. mortgage market. Now the motives of the GSEs fall into place. Fannie Mae and Freddie Mac were subject to “affordable housing” regulations, issued by the Department of Housing and Urban Development (HUD), which required them to buy mortgages made to home buyers who were at or below the median income. This quota began at 30% of all purchases in the early 1990s, and was gradually ratcheted up until it called for 55% of all mortgage purchases to be “affordable” in 2007, including 25% that had to be made to low-income home buyers”
So government created the largest mortgage insurer in the world, made them responsible for making 55% of all mortgage purchases by 2007 to home buyers who were at or below the median income that banks wouldn’t normally lend to due to excessive risk. Government did this by insuring all the mortgages made to those higher risk below median income borrowers and making the borrower pay for the mortgage insurance. A year later the housing market collapsed. None of this is coincidence.
When this happens at record rates in shortened periods of time (early 2000s and 2020-2021) is when the entire housing market becomes too risky and as a result of risk turns the market into a ticking time bomb.
It wasn’t the banks that caused the last bubble or collapse. It’s government who created the guidelines that the banks were made to follow that created the subprime mortgages that still exist today and it was government who put us all at risk by insuring those loans to make sure they got approved.
For those saying this time is different due to limited supply reread the first paragraph and then add that they’ve prevented foreclosures for over a year. Millions of homes that should have hit market in past year that didn’t simply because of that.
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