Much of the blame for the housing bubble and the subsequent recession has been attributed to the growth in subprime lending between 2002 and 2007. However, a simultaneous development of broader importance was the steady relaxation of affordability standards, which allowed prospective home buyers to qualify for increasingly large loans.In concert with the growth in the subprime market, lenders' tinkering with time-honored underwriting metrics eventually linked the two sectors in a massive feedback loop that distorted both real estate prices and the mortgage markets.
Lenders have traditionally defined "affordability" through qualifying metrics such as debt-to-income (DTI) ratios. Such ratios limit the amount of debt service to which borrowers can commit and, by implication, constrain the amount that buyers can spend on home purchases. At the macro level, their pervasive use forced home prices and incomes to rise proportionately, and acted as a brake on unsustainable home price appreciation.