ABSTRACT
This chapter describes how the nation’s housing finance system has evolved since the start of the 20th century. Among other topics, it discusses the key role of the federal government in reshaping housing finance during the New Deal, with the introduction of government-insured mortgage insurance provided by the Federal Housing Administration and the Veterans Administration, the rise and fall of savings & loans as dominant sources of mortgage financing, the establishment of a secondary mortgage market, and the promotion of long-term, fixed-rate mortgages. The chapter gives particular emphasis to the mortgage crisis that began in 2007 and its impact on the housing finance system. The latter discussion emphasizes the growth of subprime and “exotic” mortgage lending, deregulation, and the rapid growth of increasingly complex mortgage-backed securities. It also summarizes the impacts of the mortgage crisis and how the federal government responded to it—including the Home Affordable Modification Program (HAMP), Home Affordable Refinancing Program (HARP), the Neighborhood Stabilization Program (NSP), and the Dodd–Frank Wall Street Reform and Consumer Protection Act of 2010. The chapter also discusses the status and future prospects of Fannie Mae and Freddie Mac since entering government conservatorship in 2008. Finally, the chapter briefly discusses the challenges of financing multifamily housing.
