The great American housing bubble
what went wrong and how we can protect ourselves in the future
- ISBN: 9780674979659
- Editorial: Harvard University Press
- Fecha de la edición: 2020
- Lugar de la edición: Cambridge (Mass). Estados Unidos de Norteamérica
- Encuadernación: Cartoné
- Medidas: 24 cm
- Nº Pág.: 380
- Idiomas: Inglés
The American housing bubble of the 2000s caused the worst global financial crisis since the Great Depression. In this definitive account, Adam Levitin and Susan Wachter pinpoint its source: the shift in mortgage financing from securitization by Fannie Mae and Freddie Mac to “private-label securitization” by Wall Street banks. This change set off a race to the bottom in mortgage underwriting standards, as banks competed in laxity to gain market share.
The Great American Housing Bubble tells the story of the transformation of mortgage lending from a dysfunctional, local affair, featuring short-term, interest-only “bullet” loans, to a robust, national market based around the thirty-year fixed-rate mortgage, a uniquely American innovation that served as the foundation for the middle class.
Levitin and Wachter show how Fannie and Freddie’s market power kept risk in check until 2003, when mortgage financing shifted sharply to private-label securitization, as lenders looked for a way to sustain lending volume following an unprecedented refinancing wave. Private-label securitization brought a return of bullet loans, which had lower initial payments—enabling borrowers to borrow more—but much greater back-loaded risks. These loans produced a vast oversupply of underpriced mortgage finance that drove up home prices unsustainably. When the bubble burst, it set off a destructive downward spiral of home prices and foreclosures.
Levitin and Wachter propose a rebuild of the housing finance system that ensures the widespread availability of the thirty-year fixed-rate mortgage, while preventing underwriting competition and shifting risk away from the public to private investors.
Introduction: In Praise of Homeownership
1. Housing Finance before the New Deal
2. The New Deal Mortgage
3. The Rise of Securitization
4. The Boom and the Bubble
5. The Bubble Bursts
6. Timing the Bubble
7. Demand or Supply?
8. Theories of the Bubble
9. The Wall Street Securitization Bubble
10. The Key Market Failure
11. Postcrisis Reforms and Developments
12. Principles for Reform
13. Meet Franny Meg
Appendix A: The Pre–New Deal Farm Finance System
Appendix B: The Levitin–Wachter Subprime PLS Dataset
Appendix C: CDO Manager Compensation