According to the federalreserve.gov the total mortgage debt as of the 1st Quarter of 2016 for family residences, nonfamily residences, and farms was $13,848,359 trillion dollars, to which the overall GDP of America is only about $18 trillion dollars. This signifies that American mortgages are still highly leveraged despite the previous meltdown of housing prices in America from 2007-2009, as well as taking into account, the historic low interest rates available for present-day mortgages. The problem with this high amount of notable mortgage debt is that the America that we currently live in, suffers from low GDP growth, to which America has been unable to grow on a yearly basis of at least 3% since 2005, yet home pricing, home indebtedness, and home sizing has continued to inexorably increase for the most part quarter by quarter, until the present time.
The investment in housing by mortgage debtors is typically the largest investment, by far, of any material asset that anybody will ever purchase at any time, yet, America continues to provide relatively easy paths for Americans to own the American dream without insisting upon or mandating that a significant down payment for such an asset be the very foundation that our housing market should count on. It almost goes without saying, that the less "skin" that any purchaser of a home has in the game, the less due diligence of finances that is done, the less verification and consideration that takes into account a litany of factors when someone applies for financing of the purchase of a home, the greater the risk of any particular loan of not performing as expected.
You might think that banks would do all of these things, without the need of governmental oversight or knowledge, because the largest banking institutions in America are in the business of making money for their stockholders, and that they therefore will as a matter of principle, do all the necessary things to assure themselves of making fiscally sound loans. This would be true if the mortgages issued by private banking institutions, were backed by those same institutions, but in fact, banks believe in their safety first, which means that their loans are typically packaged and re-sold to other financial institutions and therein lies the first chink in the armor; the second chink is the fact that the government implicitly backs mortgages by utilizing Freddie Mac and Fannie Mae to provide both financial support as well as liquidity to the financial market under the aegis that home ownership is the American dream, and should be actively encouraged by the federal government.
The thing that is often not recognized by this enormous amount of mortgage debt, is that the more people that buy homes that are either under qualified and/or highly leveraged the more homes that will be built because the market of buyers has increased, and by virtue of the fact, that Americans wants typically exceed their means, the bigger and the more bells and whistles each home will therefore have. This means that the encouragement of excessive mortgage indebtedness increases the price of homes as well as their size, because the more borrowed money that is available, the more chasing after homes that there is; whereas if mortgage qualifications were more stringent, more fiscally demanding, and with far less flexibility of banks being able to pass the bulk of their risk onto other parties, would necessitate more affordable homes, in price, function, as well as size.