Through the 1990s and into the 2000s, the Department of Housing and Urban Development raised the quotas seven times, so that in the 2000s more than 50 percent of all the mortgages Fannie and Freddie acquired had to be made to home buyers who were at or below the median income. To make mortgages affordable for low-income borrowers, Fannie and Freddie reduced the down payments on mortgages they would acquire. By 1994, Fannie was accepting down payments of 3 percent and, by 2000, mortgages with zero-down payments. Although these lenient standards were intended to help low-income and minority borrowers, they couldn't be confined to those buyers. Even buyers who could afford down payments of 10 to 20 percent were attracted to mortgages with 3 percent or zero down. By 2006, the National Association of Realtors reported that 45 percent of first-time buyers put down no money. The leverage in that case is infinite.
In 2006, Fannie and Freddie financed about $71.5 billion in mortgages that had a loan-to-value of 95%+. That represented about 2.6% of the $2.7 trillion in mortgages originated that year. According to the NAR, about 42% of all home purchase mortgages had an LTV of 95%+.
In other words, of $1.4 trillion home purchase mortgages financed in 2006, about $588 billion had an LTV of 95%+, or which the vast majority, about 88% were financed by somebody other than Fannie or Freddie.
The reality was that the GSEs never assumed the first loss credit risk on any mortgage with a loan to value in excess of 80%, for obvious reasons. It was illegal.
If a GSE loan had an LTV higher than 80%, then the first loss was, by law, covered by private mortgage insurance. In other words, the amount of low-down payment loans available in the marketplace was never decided by the GSEs. It was decided by the private market, private mortgage insurers, which were not regulated by the federal government. In addition, the GSEs' policies prevented them from assuming 80% credit exposure on high LTV loans. So, for example, if a loan had an LTV of 85%, the minimum insurance coverage was 12%, so that Fannie's net risk exposure would be no more than 73% of the total.
There are other types of false equivalency used to invoke The Big Lie. More on that soon.
[Modifications limited to corrections of typos.]
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