Homeownership is a key foundation of the U.S. political economy. This paper traces the emergence and growth of a federal housing finance ecosystem that enabled the rapid growth of American homeownership during the mid-twentieth century. This ecosystem was established first during the Great Depression, when the federal government was forced to abandon pretensions of laissez-faire in order to end widespread default by borrowers and the failure of finacial institutions. Federal institutions were set up to provide stable credit in rural areas (the Federal Home Loan Banks), prevent defaults and foreclosures (Home Owners’ Loan Corporation), provide mortgage insurance promote the use of long-term self-amortizing mortgages (the Federal Housing Administration), and to create a secondary mortgage market (the Federal National Mortgage Association). We label these institutions as off-balance-sheet fiscal agencies (OBFAs), highlighting how these agencies acted as ‘workhorse’ balance sheets, managing the financing cycle through targeted credit expansion, long-term funding of mortgage debt, and backstopping in times of crisis in the mortgage market. The use of credit as a tool of federal policy allowed U.S. administrations to achieve policy aims in a way that mediated between fiscal conservatives, who wished to reduce the federal budget, and Keynesians who wished to use fiscal policy to ‘prime the pump’ of the U.S. economy. While this compromise was hugely successful in increasing homeownership during the post-war period, fears of mounting federal debt led to the privatization of federal agencies and the creation of government-sponsored enterprises (GSEs) which would support the private mortgage market, particularly by guaranteeing and issuing mortgage-backed securities (MBS). We find that the federal housing finance ecosystem evolved over time from bring focused on targeted support to prioritized borrowers, to structurally supporting the mortgage market in general. The paper contributes to discussions of how the U.S. state has used credit policies to systematically shape national markets in the aim of achieving social and economic goals, providing a historical case study of 8 different OBFAs over the period from 1932 to 1981.
Co-authors:
Olan McEvoy, Global Climate Forum
Fanny Chaltiel, Global Climate Forum
Andrei Guter-Sandu, University of Bath
Download link:
OBFA-TRANSFORM Working Paper No. 11-EN
