The Housing Boom and Bust

Dramatis Personae

The housing bubble was not a well-coordinated performance. The main troupe of actors included the Federal National Mortgage Association (Fannie Mae), the Federal Home Loan Mortgage Corporation (Freddie Mac), the Federal Reserve, the US Department of Housing and Urban Development (HUD), and Wall Street investment houses that turned mortgages into securities. The supporting cast members included those who promoted affordable housing and backed government action to eliminate alleged bank “redlining” (or investment exclusion) of minority neighborhoods. But the cast had no director, and the actors did not work from the same script. Each improvised, pursued its own objectives and responded to its own audience. The result was the housing boom, bust and ensuing economic crisis.

American Dream

Equity in a home is the biggest investment most American homeowners will ever hold, usually 42% of “the household’s total net worth,” and mortgage borrowing accounts for four-fifths of their debt, according to the Federal Reserve. Housing is a big budget item for renters as well as for buyers. However, borrowers’ housing expenses vary with interest rates, which...