One of the hard-won insights of the twentieth century is that race—and the stratification experienced with it—is a social construct. Although this concept is still contested, it has gained currency even among conservatives, including members of the Supreme Court. What is less explored ishowrace is constructed and what might be done to reconstruct it. We fail to understand how race not only shapes the identity of the racial other but also how it shapes the identity of the dominant racial group. It is not the constructed nature of race that is the problem but how it...

In many respects the notion that owning a home is an effective means of accumulating wealth among low-income and minority households has been the keystone underlying efforts to support homeownership in recent decades. The renewed emphasis in the early 1990s on boosting homeownership rates as a policy goal can be traced in no small part to the seminal work by Oliver and Shapiro and by Sherraden, which highlighted the importance of assets as a fundamental determinant of the long-run well-being of families and individuals.¹ The efforts of these scholars led to a heightened awareness of the importance of assets in...

The recent foreclosure crisis and ensuing economic recession have been unprecedented in modern times. The loss of wealth due to the decline in value of real estate has been dramatic. Between 2006 and 2011 house prices fell more than 30 percent nationally, wiping out over $8 trillion in home equity.¹ At the height of the foreclosure crisis, one of every four homeowners with mortgages owed more on their mortgages than their homes were worth.² Moreover, many people have been put out of their homes and had their credit ratings severely damaged. Mortgage foreclosures increased from the 1980–2006 average foreclosure...

I am sitting on the lawn of a modest single-family home in Albuquerque, helping a toddler put together her Mega Bloks^®as I talk with her mother, a twenty-four-year-old Latina who has lived in the United States her entire life. We are taking advantage of an unusually warm February day, and the interview is going better now that we are at her home rather than sitting in the nearby public library. Earlier in the conversation, I felt as if she were giving me carefully considered answers to my questions about her home search process (“We did a budget to see...

Homeownership has captured the attention of policymakers across the world in recent years, and this attention has often been negative. Bank failures based on failed home mortgages and a nearly global housing recession have raised difficult questions about the viability of pro-ownership public subsidies. In the United States, high foreclosure rates have provoked a debate over using limited federal resources to promote home purchases.¹ Yet demand for buying a home remains strong, even among households most exposed to the negative outcomes of failed homeownership.² The lure of owning a home remains part of the social and economic fabric of families...

Most discussions about expanding access to homeownership take as a given that we know exactly what homeownership is. The questions then usually fall into a predictable pattern: What are the risks and benefits of homeownership? How might it be expanded, and what are the costs and benefits of the different options for doing so? How can positive homeownership outcomes (for example, use of homeownership to access better neighborhoods) be maximized while minimizing negative ones (for example, foreclosure)?

But what if we were to take a step back and reexamine the definition and scope of the end goal itself? As others...

The mortgage market crisis of the past decade led to many changes in the structure of the industry and in the products being offered to borrowers. The beginning of the 2000s witnessed a surge in nonprime lending with an attendant proliferation of new products, including many that allowed borrowers who could not meet traditional underwriting standards to obtain home mortgages and achieve homeownership. By the end of the decade, however, delinquency and foreclosure rates had increased throughout the country, the nonprime sector had collapsed almost entirely, and these innovative products were largely gone from the offerings of mortgage lenders.

One...

State Housing Finance Agencies (HFAs) entered the homeownership policy scene in the early 1970s through the sale of tax-exempt mortgage revenue bonds, which HFAs would then pass along as an interest rate savings on mortgages to qualified low- and moderate-income (LMI) first-time homebuyers. With mortgage interest rates rising as high as 18 percent in the early 1980s, many otherwise creditworthy homebuyers were cut off from the mortgage market simply because the monthly payments associated with the mortgage were too high. HFAs helped to reduce this barrier to entry by offering mortgages at below-market interest rates (often 2 to 4 percentage...

This chapter examines the impact of mortgage supply characteristics on both housing affordability and financial risk outcomes in the wake of the mortgage crisis. A hallmark of the crisis was a shift toward nontraditional mortgage lending products. What impact did this have on consumers, investors, and the financial system? We address the performance of these products and their interaction with the financial sector in the production of systemic risk. While ex post the performance of these mortgages was disastrous and neither expected nor priced, we also show that ex ante the credit risk was also mispriced.

The links among mortgage...

If the housing crisis has had a silver lining, it is the opportunity to rethink our housing finance policy. The U.S. housing finance system and its regulation evolved to address particular crises and problems—the Great Depression, the postwar housing crunch, the 1960s budget crises, redlining, the savings and loan crisis—rather than as a planned, comprehensive system.¹ Taking into account how the mortgage finance market has been restructured in the wake of the 2008–09 financial crisis, it is essential to ensure that it better serves the housing needs of all Americans. Thus, an important question going forward concerns...

Dual mortgage markets are a direct descendant of key policy responses to the Great Depression. Before the Depression, nearly all mortgages were five-year balloons, so that homeowners needed to refinance their mortgage every five years. The capital crisis of the Depression limited the ability of households to find new credit when their mortgages reached maturity, which resulted in massive foreclosures. The policy response was to bolster the housing finance system by creating institutions, including Fannie Mae and the Federal Housing Administration (FHA), to provide access to credit for these populations who would otherwise be forced into foreclosure and be shut...

Empirical research on the causes of financial crises has grown in recent decades.¹ Early work, such as that by Kaminsky and Reinhart, helped establish the link between asset prices and banking crises.² While this initial research focused on equity prices, subsequent research expanded the analysis to include residential property prices. This subsequent research is briefly reviewed here. After establishing the link between residential property prices and banking crises, I discuss the role of various credit policies, both for their impact on property prices and for the stability of the financial system in the face of declining property prices. The role...

For most families, a central part of the American Dream has been the goal of homeownership. In 2004 consumer attitudes, public policy, and the private sector were all integrally involved in driving the rate of homeownership to a record high of 69 percent.¹ The prevailing opinion was that homeownership was a sound economic investment and that it built stronger families and enriched community life. However, the Great Recession and the lingering economic hardship afterward had a devastating effect on individuals, families, neighborhoods, and communities across the United States. The record numbers of unemployed and underemployed, foreclosures, significant drops in home...

From 2007 through 2011, the United States housing market suffered from a severe imbalance in supply and demand.¹ On the supply side, there were too many homes for sale, and too many of those listings were for foreclosed homes. In addition, there were several million homes awaiting sale in the foreclosure pipeline.² Many of these homes in the so-called “shadow housing inventory” eventually came on the market and pushed down house prices.

The demand for homes was also depressed. In the aftermath of the financial crisis, banks tightened their lending standards. Meanwhile, millions of households suffered a decline in creditworthiness,...