The Rise and Fall of the US Mortgage and Credit Markets

Overview

For decades, the home mortgage market successfully extended creditto more and more families, enabling millions of Americans to owntheir own homes. In recent years, however, it became ever moreapparent that credit was expanding too rapidly and too many marketparticipants were becoming dangerously leveraged. What began ashealthy growth in mortgage originations and housing starts swiftlybecame a home price bubble. When home prices did come plunging backto earth, the damage quickly spread far beyond the scope of ...

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Overview

For decades, the home mortgage market successfully extended creditto more and more families, enabling millions of Americans to owntheir own homes. In recent years, however, it became ever moreapparent that credit was expanding too rapidly and too many marketparticipants were becoming dangerously leveraged. What began ashealthy growth in mortgage originations and housing starts swiftlybecame a home price bubble. When home prices did come plunging backto earth, the damage quickly spread far beyond the scope of theactual mortgage defaults and foreclosures. Even solid companieswith no connection to the real estate and finance sectors wereaffected as credit markets seized up. How did this happen—andwhat can we do about it now?

In The Rise and Fall of the U.S. Mortgage and CreditMarkets, James Barth, with the assistance of his colleagues atthe Milken Institute, analyzes in detail the mortgage meltdown andthe resulting worldwide financial crisis. He explains how MainStreet and Wall Street alike took on too much risk and too muchdebt in their quest for gains, setting the crisis in motion.

In straightforward terms, he tells what subprime mortgages are,who subprime borrowers are, and how securitization—packagingloans into complex securities and selling them in the secondarymarket—expanded the mortgage market, but also opened the doorto a shifting of risk. Barth also assesses what went wrong in everyother critical area, including loan origination practices,regulation and supervision, Fannie Mae and Freddie Mac, leverageand accounting practices, and, of course, the rating agencies.

The author explains the steps the government has taken thus farand suggests that those actions have been piecemeal—andlargely reactive, rather than proactive. He argues that we have yetto address the bigger and more long-term issue of how to reform thestructure of regulation and supervision to prevent a similar crisisfrom happening again. Barth also offers his own thoughts on thefactors that should drive reform and explores several importantissues that policymakers must address in any future reshaping offinancial market regulations.

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Product Details

  • ISBN-13: 9780470477243
  • Publisher: Wiley
  • Publication date: 5/4/2009
  • Edition number: 1
  • Pages: 526
  • Product dimensions: 6.00 (w) x 9.10 (h) x 1.80 (d)

Meet the Author

James R. Barth is a Senior Fellow at the Milken Institute and the Lowder Eminent Scholar in Finance at Auburn University. His research focuses on financial institutions and capital markets, both domestic and global, with special emphasis on regulatory issues. Barth was an appointee of Presidents Ronald Reagan and George H.W. Bush as chief economist of the Federal Home Loan Bank Board and later of the Office of Thrift Supervision. He has authored more than 200 articles in professional journals and has written and edited several books, including The Great Savings and Loan Debacle, The Reform of Federal Deposit Insurance, and Rethinking Bank Regulation: Till Angels Govern. Barth has been quoted in publications ranging from the New York Times to the Wall Street Journal and has appeared on broadcast programs including The McNeil/Lehrer NewsHour, Good Morning America, Moneyline, and CNBC's Closing Bell.

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Table of Contents

List of Illustrations.

List of Tables.

Acknowledgments.

Chapter 1 Overleveraged, from Main Street to WallStreet.

Chapter 2 Overview of the Housing and MortgageMarkets.

Housing Units, Mortgage Debt, and Household Wealth.

Types of Home Mortgages.

Two Housing Finance Models: Originate-to-Hold vs.Originate-to-Distribute.

Low Interest Rates Contribute to Credit Boom and RecordHomeownership Rates.

Mortgage Originations, Home Prices, and Sales Skyrocket.

Chapter 3 Buildup and Meltdown of the Mortgage and CreditMarkets.

What Is a Subprime Mortgage and Who Is a Subprime Borrower?

Subprime Lending Grows Rapidly and New Products GainAcceptance.

Subprime Mortgages Enable More Widespread Homeownership.

Securitization Facilitates the Funding of SubprimeMortgages.

The Housing Bubble Reaches the Breaking Point.

The Collapse Begins.

Chapter 4 When Will the Crisis End?

What Is the Damage Scorecard to Date?

The Pain Spreads throughout the Financial Sector and Beyond.

When Will We Hit Bottom?

Chapter 5 What Went Wrong . . . ?

. . . with Origination Practices and New FinancialProducts?

. . . with Securitization and Rating Agencies?

. . . with Leverage and Accounting Practices?

. . . with Fannie Mae and Freddie Mac?

. . . with Tax Benefits for Homeownership?

. . . with Regulation and Supervision?

. . . with the Greed Factor?

Assessing the Role of Various Factors to ExplainForeclosures.

Chapter 6 So Far, Only Piecemeal Fixes.

The Landscape Shifts for Lenders.

The Federal Reserve Intervenes to Provide Liquidity andHigher-Quality Collateral.

Congress and the White House Take Steps to Contain theDamage.

The FDIC Takes Steps to Instill Greater Confidence in DepositoryInstitutions.

The Government’s Actions Drive up the Deficit.

Chapter 7 Where Should We Go from Here?

Key Factors That Should Drive Reform.

Issues for Policymakers.

Concluding Thoughts.

Appendix.

Endnotes.

Glossary.

References

About the Milken Institute and General Disclaimer.

About the Authors.

Index.

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