A new study from the UC Irvine Paul Merage School of Business Center for Real Estate suggests that the private mortgage industry, not subprime borrowers who took out risky adjustable rate loans, led to the current lending crisis that resulted in the dramatic rise and fall of home prices across the country and mounting foreclosures.
According to the study, had loan limits for Fannie Mae and Freddie Mac, the nation's two largest mortgage lenders, been lifted ahead of the current housing crisis, the two agencies would have been able to provide more loan products for borrowers, and the private mortgage sector would not have pushed as many subprime loan products– loans that, for many homeowners, became unaffordable as their initial adjustable interest rates reset at higher amounts.
"We were quite surprised to find the intensity of subprime lending was insignificant after controlling for all the other factors influencing the market, but we were really blown away when Fannie's and Freddie's continuing presence in the market was shown to be so important," said Kerry Vandell, UCI finance professor and Center for Real Estate director.