Origin of the Housing Bubble: “The National Homeownership Strategy”

Under the NHS the considerable resources of the Federal Government were brought to bear on expanding homeownership. In 1994 HUD directed Fannie Mae and Freddie Mac to proliferate subprime lending. These combined Government Sponsored Entities (GSEs) act as a functional monopoly within the mortgage market. As such, they enjoyed substantial influence over lending standards, credit availability and the private-sector mortgage industry which was directly dependent upon the GSE’s for profitability. By 1996, HUD was directing Freddie and Fannie to provide at least 42% of their mortgage financing to low-income borrowers and 12% of their portfolios to “special affordable” loans.