3Center or American Progress | Future o Housing Finance Reorm
Furhermore, even wih he predominance o hese lender-riendly eaures, hepurely privae morgage sysem ha exised prior o he 1930s was highly vulner-able o exreme bubble-and-bus cycles. During good imes, a lack o regulaory resrains mean ha here were no checks on excessive opimism and risk-akingin morgage lending; heavily leveraged morgage lending led o housing bubbleson a regular basis. And during bad imes here were no sources o morgage credio preven a reeall in he housing markes. As a resul, he U.S. morgage bankingsysem regularly suered banking panics every 5 o 10 years, which when i hap-pened had high coss or individual homeowners and deleerious consequenceson economic growh.
In response o he las o hese bus cycles, he Grea Depression, policymakersenaced a series o major banking and housing nance reorms, which ushered ina new and successul era o morgage marke sabiliy ha lased unil he 2008nancial crisis. Te key eaures o his new home morgage nance sysem were:
Srong risk regulaion across all morgage lenders o preven excessive risk-ak-ing and miigae he problem o housing bubbles
Broad availabiliy o aordably priced, long-erm, xed-rae morgages acili-aed by governmen-owned insiuions and governmen-sponsored enerprises,including he Federal Housing Adminisraion, he Veerans Adminisraion, heFederal Home Loan Bank Sysem, and Fannie Mae
Te provision o morgage credi during periods o marke conracion oreconomic downurns, which oen happened simulaneously, by hese sameinsiuions
Te ne resul o hese reorms was o provide aordable housing opions, includ-ing homeownership and aordably priced renal housing, o generaions o American households, allowing hem o save and inves he bulk o heir incomeraher han spending his on sheler. I is no an exaggeraion o claim ha U.S.housing nance policy is he oundaion or he social mobiliy upon which heideal o he “American Dream” is based.Moreover, because o he srong regulaory oversigh o morgage lenders, his sys-em was exraordinarily sable, providing many decades o unprecedened sabiliy o invesors and borrowers alike—unil he ascendance o laissez-aire conservaiveeconomic ideology led o a seep decline in pruden supervision over he housingand nance markes, resuling in he 2000s housing bubble and consequen bus.