These shadow banks dominate in mortgages that are insured by the FHA and the VA, including no-down-payment and low-down-payment mortgages for buyers with subprime credit ratings, the riskiest mortgages out there. Thus, FHA and VA backed loans have jumped from 6% of all purchase originations in 2006 to 30% in Q3 2016.


It is largely via this conduit of the shadow banks that the nationalization of the riskiest end of the mortgage industry is proceeding. It has now become completely dependent on government guarantees.


But there is no risk, we hear constantly. Defaults are at a record low. Same as just before the last housing bust.

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