Remember, private securitizations (subprime, Alt-A, etc.) really only were dominant from 2004 to early 2007, and that market had died by late 2007. Homeownership peaked in early 2004. The market outside the GSEs is surprisingly unrelated to growing homeownership rates. I have come to see the rise in private securitizations as a response to the decline in the GSE's that came after the Bush administration pressured the GSE's with regulatory scrutiny, leading to accounting scandals, impositions of new capital controls, etc. So, it is likely that without the rise in private mortgages, defaults would have risen in 2004 and homeownership would have fallen more sharply then. The lack of correlation doesn't mean that those markets didn't provide some credit support for homeowners, but it does seem like the GSE's are the primary conduit, on net, for sustained ownership via the entry of first time homebuyers.
While private securitizations had provided support for mortgage markets when the GSE's pulled back in 2003 and 2004, the GSE's didn't provide support for mortgage markets when private pools collapsed in 2007. In fact, they joined in the collapse.
I have shown in other posts that there was no change in the overall credit-worthiness of homebuyers in the 2000s. Homeowner incomes were flat or rising until the collapse, then rose after the collapse because the mortgage market for low income buyers has dried up. We see a similar pattern at Fannie with FICO scores. FICO scores were very stable until 2008. Since then, Fannie has basically closed down originations for the bottom third of what was previously a longstanding portion of the origination market.
In the second graph, here, we can see that all of the growth in mortgages outstanding at Fannie Mae have been at FICO scores of 740 or more.
This highlights something that I think may be underappreciated. I have pointed out many times that the mortgage market has been closed to the bottom half of the population, by income or credit-worthiness. But, notice here that all FICO categories under 740 had been declining or treading water since 2007. Originations have been negligible for FICO scores under 660 and low for scores under 700.
Many of those households are basically grandfathered in. Many probably cannot qualify to refinance existing loans. So, even existing owners at the low end of the credit spectrum have been disadvantaged by the closed off mortgage market, and find it harder to refinance at lower rates compared to households at the higher end of the credit spectrum.
The bottom of the market was collapsing after late 2007 because we stopped providing credit to it. Low priced neighborhoods didn't lose value because of defaults on risky loans to households that couldn't afford them. They lost value because from 2006 into late 2007, the market for mortgages to those neighborhoods, whether from private markets or the GSEs, disappeared. The market disappeared before the defaults piled up.
Since that time, we can see the sharp divergence between the existing pool of mortgages and the marginal new pool of mortgages here. The typical down payment, which had been steady or rising throughout the boom, kicked up in 2008 and 2009. The average loan size for the small number of new buyers kept marching up even as the typical home value in the portfolio was collapsing. Larger loans with larger down payments means that in 2008 and 2009, Fannie was only supporting the very high end of the market.
Before that, the average home value of the existing portfolio and new originations followed along fairly closely with one another. The moral error of public perception and policy is stark. The CEO's of Fannie and Freddie at the time are currently being sued by the SEC for having put too much money into the low end of the mortgage market.
I find that the inability of the GSE's to provide support for the mortgage market when it was needed largely comes down to expectations. We really did will this collapse into existence. I'll probably have more on that later.