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This chapter discusses the New Deal housing policy and the making of national mortgage markets. Though Franklin Roosevelt was sympathetic to housing the poor, his policies aimed, primarily, to grow the economy and reduce unemployment. If this could be accomplished through housing the poor, all the better, but that was a secondary goal to restoring economic growth. Unlike the other housing programs of the New Deal, the Federal Housing Administration (FHA) promised and achieved this growth. By 1939, investment in residential housing was nearly back to its 1929 levels. The flood of funds, guaranteed profits, and standardized policies initiated through the FHA changed the way banks operated forever, turning mortgages into nationally traded commodities—and in the process changing the way Americans related to banks and debt.

This chapter shows that there were two conceivable ways that banks could have engaged in lending. First, they could have entered the mortgage market as lenders but not relied on a notary to do anything except draw up the loan contracts. At the other extreme, banks might not have competed at all with notaries; rather, their short-term commercial loans might have complemented the notaries' business in arranging mortgages. The chapter examines both possibilities, along with more realistic alternatives between the two extremes, including one in which notaries tried to compete with banks. Notaries, however, were not driven out of business by banks. Many notaries were in fact tempted to take money on deposit and start making short-term loans, at least until the 1880s, when the government enforced prohibitions on the practice.

This chapter focuses on the government-sponsored enterprises (GSEs), Fannie Mae and Freddie Mac. It first discusses the background and origin of the GSEs, the evolution of their structure as a public/private partnership, and the federal role in supplying housing credit. It then provides a brief summary of home ownership and government policy. Next, it describes the broader objectives and goals of the GSE institutions and analyzes the most recent failures of the credit market and the secondary housing market. It explores the likely consequences of plans to restructure GSEs and alternative mechanisms for government support of the US mortgage market. It also provides a brief summary of the GSEs under their government conservatorship since September 2008.

Chapter 4 addresses governance and the financial crisis. Successful firms had strong CEOs who invited constructive dialogue, from the board of directors, their management team, and their risk officers. Good communications were essential for success. The chapter quotes a gentleman at a successful company who said proudly, “the CEO often asks my opinion on major issues,” and then added, “but he asks 200 other people their opinions too.” Unsuccessful firms often had dominant CEOs, weak boards, and risk managers that they disregarded. Unsuccessful firms were unequipped to deal with early warning signs that the mortgage market was weakening. Their leaders did not seem to have access to feedback so that they would ask and reflect on simple questions that could have raised warning flags. Problems were compounded by compensation systems that emphasized short-term rather than long-term financial performance.

A revolution in global finance following bank liberalisation in the 1980s and the invention of new methods of bundling debts into bonds — through the process of securitization — enabled banks to separate the origination of mortgages from the long-term investment of these debts. In this new global financial system, a tsunami of capital was created that washed across the planet, creating a surge in house prices almost everywhere, especially in the house price bubble of 2000–5. There were, however, many variations in the institutional structure of mortgage systems, so the economic and social outcomes of peoples' access to new forms of lending at a national level were very varied. Societies with open/liberal markets benefited most as innumerable new mortgage products connected households to these global flows of capital. But even some of the social market economies were impacted by this new era of global finance, and integrated rental markets came under pressure. The process of housing equity withdrawal enabled homeowners to access accruing property values in ways previously impossible.

Mortgage markets differ across countries in terms of size, institutional and legal structures, and the extent and modality of government intervention. This chapter begins by briefly reviewing international comparative studies of mortgage markets. It then provides an overview of mortgage finance systems and describes the key features of mortgage markets of 21 countries. Next, the chapter offers an empirical analysis of mortgage markets using a data set comprising a maximum number of countries for which reliable data are available. It also characterizes ideal housing finance systems and presents a taxonomy of countries based on a set of criteria. The last section summarizes the main findings and provides suggestions on future research.

This chapter traces the rapid evolution of mortgage financing from boom to bust and explores two crucial questions surrounding the market's rise and fall. First, why did the lending boom occur in the size and form that it did? Second, why has the foreclosure crisis been both cataclysmic and heterogeneous across geography and loan types? The chapter is organized as follows. Section 4.2 presents a broad set of descriptive statistics and facts regarding the rise and fall of the subprime mortgage market. Section 4.3 addresses the question of why there was a lending boom of this sort. Section 4.4 discusses the “prolonged” foreclosure crisis that prompted a number of policy responses by the government. The chapter concludes with broad perspective on the future of mortgage finance and lessons learned from the last tumultuous decade.

This chapter reviews research on the origins of the financial crisis of 2008–2009, highlights the key events that triggered a financial panic in September 2008, and summarizes the extraordinary policy actions the United States (US) has taken to ameliorate the crisis. It discusses the proximate causes of the crisis, including the characteristics and growth of the subprime mortgage market, and the distorted incentives and flawed regulatory structure surrounding the secondary market for mortgage-backed securities. It also assesses the role of more fundamental macroeconomic determinants of the bubble in US asset prices, most notably low global interest rates attributed to either loose monetary policy or excess global saving

Housing was neglected in the comparative welfare state literature until very recently. The reason for this appears to relate to some of ‘housing's’ characteristics, particularly that it is found mostly in the private sector, unlike other welfare services. The significance of housing and its critical connection to welfare states was first recognised and explained by Kemeny. Discoveries made by Esping-Andersen showed that there were different types of welfare states in modern capitalist societies. Kemeny's analysis suggests that different housing systems can also be identified, especially those that either promote open, liberal housing markets in which home ownership predominates, or ‘social market’ economies, such as Germany, where housing is not thought of as a commodity but as a social right. The creation of ‘deep’ mortgage markets following the deregulation of banking in the 1980s has connected homeowners to the flow of global capital and impacted on voters' attitudes to taxation and spending on public services. Through the advances made in this work, housing has taken its rightful place as a key feature of how we think about and define twenty-first century welfare states.

This chapter discusses the distributional politics of mortgage markets and securitization in the postwar era and explains their transformation in the 1960s as the Federal National Mortgage Association (FNMA/Fannie Mae) was “spun off” from the government and authorized to finance itself by issuing a new kind of government-guaranteed mortgage-backed security. In the second half of the decade, a series of crises marked the end of one era and the beginning of a long transition into a new one marked by scarcity, neoliberalism, and financialization. The end of postwar affluence created a distributional struggle over which social groups would pay for what, and that process played out through the highly contentious and veto-ridden world of budget politics. Housing credit was doubly implicated in these fights, first because it was hit hard and early in market corrections, and second because its credit programs could be used for off-budget accounting. For all that the new approach to securitization reflected a changing relationship between the state and the market, the modern mortgage-backed security continued to reflect the institutional logic of the credit programs: the use of state-promoted financial development and risk redistribution as an alternative to more direct forms of wealth redistribution.

It is generally agreed that the crises of the mid-2000s were triggered, in part, by the failures of financial innovation in the housing economy. In relation to the securitisation of mortgages, and the growth of markets for collateralised debt obligations and credit default swaps, this may well be true. However, this chapter argues that, in other ways, notably in relation to house price volatility and the management of housing equity, key element of the crisis were less a legacy of innovation than a product of conservatism.

This chapter examines the evolution of the structure, conduct, and performance of mortgage markets in the United States. It traces federal interventions in the mortgage markets from the 1930s to the present. These interventions dramatically shaped mortgage markets. The failure of regulators to contain private risk taking in mortgage markets during the 2000s led to excessive leverage and risk. The financial crisis that ensued prompted the federal government to bailout the housing finance system. The chapter concludes with a set of issues raised by the near collapse of mortgage markets. These issues include how to: (1) regulate originators, securitizers and rating agencies; (2) protect claim hierarchies in first and second mortgages to allow debt restructuring, (3) construct pooling and servicing agreements; (4) regulate credit default swaps (CDS) so that sellers are monitored to ensure they have the capital to honor their commitments; and (5) provide adequate disclosures and protection against interest rate risk as markets soak up low-yielding debt obligations.

This introductory chapter offers an overview of how the modern US mortgage market was formed and describes how it operates. It discusses the market’s history and development, as well as details associated with different mortgage products. Beginning primarily as short-term loans with high down-payment requirements, residential mortgages issued today comprise one of the largest classes of assets in the world. It wasn’t until the Great Depression, and the resulting economic and regulatory reforms under President Franklin Roosevelt’s New Deal, that the mortgage industry began to be formally integrated into the country’s financial infrastructure. The growth of the US mortgage market also spawned the creation and development of the mortgage-backed securities (MBS) market, one of the largest and most active sectors in global finance. The chapter addresses the MBS market, examining why and how it developed, how securities are created, and how they are traded in the financial markets.

This chapter examines the subprime crisis of 2007 and the larger credit crisis which adversely affected residential mortgage-backed securities (RMBS), particularly those backed by mortgages of lower credit quality. It describes the conditions that preceded the crisis, and the evolution of the mortgage market during the ensuing broader credit crisis and beyond. Mortgage performance deteriorated beginning in 2006, as the housing market and broader economic conditions declined. Subprime mortgage originations decreased rapidly as originators failed or otherwise exited the market, and lack of house price appreciation made borrowing more difficult. Prices of non-agency RMBS fell and bonds were downgraded as well. As financial companies deleveraged in response to falling asset prices, the subprime losses resulted in a systemic impact.

This introductory chapter provides a background of America's real estate markets. Already by 1890, nearly half of U.S. households were owner-occupied, and a staggering four-fifths of farming households headed by people over the age of 60 were owner-occupied. Such high levels of homeownership required a massive amount of credit to circulate, and in the right way. This was no easy feat. Mortgages are risky and costly transactions, ones that many banks avoided, either partially or completely, for long periods of time. America's mortgage markets were also endemically unstable and inefficient. American mortgage markets are therefore old, expansive, morally supercharged, and highly consequential. All of this is ideal for a study of the social life of finance. Mortgage markets' long and troubled history also provides a context in which to understand the two cases at the heart of this book: securitization and federal credit. Both evolved as ways to manage the risks and costs associated with lending and, in so doing, improve the flow of credit across the nation.

This chapter examines risk allocation in home ownership. After providing a historical background on home ownership in the United States, it explains the role of government in mortgage risk management and how changes in the terms of mortgage contracts increased the risk of home ownership for families. It then discusses the conditions/features of mortgage risk, with particular reference to adjustable-rate mortgages, the subprime mortgage market, and exotic loans. It also considers the causes of increased risk burden with respect to mortgages before concluding with an assessment of policy responses to mortgage lending.

This chapter describes the events leading up to the subprime crisis. These include the bankruptcy of two large subprime lenders in December 2006: Ownit Mortgage Solutions in California, and Sebring Capital Partners LP in Texas; the collapse of the mortgage-backed securities market in spring 2007; the Federal Reserve's slow response to the volatile stock market; massive layoffs by Wall Street firms; the Fed and Bush administration's expansion of the federal role as financier of last resort; and continued decline of the US economy through the summer of 2008.

This chapter examines how excesses in the global housing and mortgage markets contributed to the financial crisis of 2008. It begins by considering the enthusiasm for real estate worldwide in the early days of the new millennium, along with rise in house prices coupled with the growth of mortgage debt. It then discusses the impact of housing wealth on consumption and the dramatic rise in subprime loans, along with the role of incentives and investment banks in the emergence of problems in the mortgage market. It also analyzes how regulation and especially the US government's support for mortgage lending precipitated the global financial crash. The chapter concludes by focusing on the persistence of asset price bubbles and their link to arbitrage.

This chapter focuses on the globalisation and liberalisation of mortgage markets. What has happened is that the mortgage market has become a conduit between global finance and the everyday. The home has become financialised in ways that were impossible before banking deregulation. For homeowners, the ability to unlock housing equity has been a widely used practice almost since the start of the deregulated mortgage market in the 1980s. This has created a super-commodified realm at the heart of the competition state. The democratisation of access to capital also required a new citizenship contract based around norms of risk taking and self-provisioning. More than this, however, homeowners are predisposed to support low-tax public policy because of the front-loading of housing costs.