It is the American dream for most families to own a house, to which, the government has clearly put its money where its mouth is, by setting up several agencies that their most notable purpose is to essentially federally guarantee mortgages, with agencies such as Fannie Mae, Freddie Mac, the Federal Housing Administration (FHA), and the Veterans’ Administration (VA). To help define exactly what these agencies do, they essentially buy up mortgages from credit unions, banks, and other financial institutions in bundles of mortgage loans from those entities, in which these bundled loans conform to the rules, goals, and mandates given to these Government Sponsored Enterprises (GSEs) so that if the government desires that Freddie Mac should purchase mortgage loans on behalf of affordable housing requirements as imposed by the Housing and Urban Development (HUD), they will do so.
What this means is that if the government is willing to subsidize housing purchases in which any of the following are permitted as part and parcel of the purchase, such as poor credit history, low down payment, high ratio of mortgage amount vs. percentage of take home pay, than this is what the bundled loans will more frequently consist of, because the nature of loans for any of the various banking institutions, is that the more that you can loan in aggregate, the greater the amount of fees, points, and interest that you will make over the term of the loan, and if the banking institutions, can offload their risk onto governmental or GSEs they will have essentially increased their market share and profitability without infringing upon their own risk.
This signifies that the actual effect of GSEs purchasing bundles of mortgage loans, especially when combined with an overarching desire to see more mortgage loans originating to more people, that the qualification standards of those receiving such loans, will degenerate. Even more to the point, if banking institutions can offload their risk to GSEs, they have every incentive to issue as many loans as possible that while ostensibly staying within the bounds of governmental policies, are clearly loans in which the default rate will be substantially higher, in fact, so high, that is a certainty that a significant amount of these loans will at some point come into default.
If, this government aids and abets the purchasing of bundles of mortgage loans, to which the qualifications to have such a loan issued, have been reduced significantly this will subsequently increase the risky nature of these loan packages, substantially, so that this government will have far more loans issued of a questionable nature. This then equates inevitably into a cycle of more mortgage defaults, more liar loans in order to scam the system, and more overall cheating in order for banks to make, maintain, or to increase their profits, to which all of these things are passed off to where the buck does stop, the Federal government and its agencies, but unfortunately, for the American public at large, the blowback is, that the failures of government in keeping its fiscal house in order, mean invariably that the taxpaying citizens of this country have to make good on these loans that should have never been made in the first place, while also compensating banking institutions that "gamed" the system in order to enrich themselves.