Dream Deregulated: The Politics of U.S. Housing Finance, 1968-1985
Freund, David M.P.
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Beginning in the late 1970s, policymakers enacted a series of legislative and regulatory changes that, by 1985, combined to dismantle the New Deal-era system of housing finance. These policy changes fundamentally restructured the way that Americans accessed credit for homeownership from primarily borrowing via long-term, fixed-rate mortgages from local, federally insured S&Ls that collected deposits at a regulated cost, to increasingly borrowing through adjustable-rate mortgages issued by unregulated brokers who then sold those mortgages to investors in a secondary market, typically through an intermediary such as Fannie Mae or Freddie Mac. "Dream Deregulated" argues that this transformation of housing finance undermined the progressive intent of the open housing and community reinvestment initiatives of the 1960s and 1970s by making housing credit less stable for all borrowers, relative to the New Deal system, and by largely disconnecting housing finance from the institutional structure that the civil rights initiatives were designed to regulate. It further argues that policymakers pursued broad deregulation of housing finance only after their pursuit of a narrower agenda of deregulation, that of deposit interest rate ceilings, opened the door to a series of arguments for further deregulation, particularly of S&L assets, including authorization of adjustable rate mortgages. The populist politics of the deregulation of deposit rate ceilings, taken up by and on behalf of "small savers," provided a discursive wedge for advocates of broader deregulation, taken up by and on behalf of the interests of the largest financial institutions and a neoliberal political agenda. "Dream Deregulated" investigates the policymaking process as a case study in what Paul Pierson calls "politics in time." This study bridges scholarship on fair housing and community reinvestment with that on the deregulation of housing finance, and contributes to a deeper understanding of the politics of opportunity in the United States during the latter third of the twentieth century. It historicizes the politics of financial deregulation, and, with its focus on the populist politics of deregulation, helps to explain the "construction of consent" to a neoliberal regime. Finally, "Dream Deregulated" demonstrates how a contradictory complex of housing policies contributed to the recent financial crisis.