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Federal Government Has Dramatically Expanded Exposure to Risky Mortgages - ABI

The federal government has dramatically expanded its exposure to risky mortgages, as federal officials over the past four years took steps that cleared the way for companies to issue loans that many borrowers might not be able to repay, the Washington Post reported. Now, Fannie Mae, Freddie Mac and the Federal Housing Administration guarantee almost $7 trillion in mortgage-related debt, 33 percent more than before the housing crisis, according to company and government data. Because these entities are run or backstopped by the U.S. government, a large increase in loan defaults could cost taxpayers hundreds of billions of dollars. This risk is the direct result of pressure from the lending industry, consumer groups and political appointees, who lobbied for the government to intervene when homeownership rates fell several years ago. Starting in the Obama administration, numerous government officials obliged, mistakenly expecting that the private market ultimately would take over. In 2019, there is more government-backed housing debt than at any other point in U.S. history, according to data from the Urban Institute. Taxpayers are shouldering much of the risk, while a growing number of homeowners face debt payments that amount to nearly half of their monthly income, a threshold many experts consider too steep. Roughly 30 percent of the loans Fannie Mae guaranteed last year exceeded this level, up from 14 percent in 2016, according to Urban Institute data. At the FHA, 57 percent of the loans it insured breached the high-risk echelon, jumping from 38 percent two years earlier. ABI

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