HUD’s [decade long] policy [of reducing standards for home loans] was successful. In 1989, only 1 in 230 homebuyers bought a home with a down payment of 3 percent or less, but by 2003, 1 in 7 buyers was providing a down payment at that level and by 2007, the number was less than 1 in 3. The program’s contribution to the reduction in home equity and the subsequent increase in leverage is obvious.
HUD also used the FHA, a government mortgage insurance agency it controlled, to lead the way in reducing underwriting standards.One would think that they'd done enough, but the AEI scholars say they've kept up the bad work;
For a time, as the GSEs [Fannie Mae and Freddie Mac] expanded their loan purchases, the FHA became less important for assisting growth in homeownership. Recently, however, as their conservator has tightened the [bankrupt] GSEs’ lending standards and reduced the effect of the AH [affordable housing] goals, the FHA has increased its market share of home purchase loans, from 8 percent in 2007 to 43 percent in 2010. In other words, the current administration is no different from the last two, which were willing to reduce the underlying equity in housing to spur home sales—an adverse trade-off between short-term objectives and long-term market health.Meaning that the government is giving more of the medicine that nearly killed the patient.