The rise and fall of the U.S. mortgage and credit markets : a comprehensive analysis of the market meltdown

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Bibliographic Information

The rise and fall of the U.S. mortgage and credit markets : a comprehensive analysis of the market meltdown

James R. Barth ... [et al.]

J. Wiley, c2009

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Note

Includes bibliographical references (p. 479-505) and index

Description and Table of Contents

Description

The mortgage meltdown: what went wrong and how do we fix it? Owning a home can bestow a sense of security and independence. But today, in a cruel twist, many Americans now regard their homes as a source of worry and dashed expectations. How did everything go haywire? And what can we do about it now? In The Rise and Fall of the U.S. Mortgage and Credit Markets, renowned finance expert James Barth offers a comprehensive examination of the mortgage meltdown. Together with a team of economists at the Milken Institute, he explores the shock waves that have rippled through the entire financial sector and the real economy. Deploying an incredibly detailed and extensive set of data, the book offers in-depth analysis of the mortgage meltdown and the resulting worldwide financial crisis. This authoritative volume explores what went wrong in every critical area, including securitization, loan origination practices, regulation and supervision, Fannie Mae and Freddie Mac, leverage and accounting practices, and of course, the rating agencies. The authors explain the steps the government has taken to address the crisis thus far, arguing that we have yet to address the larger issues. Offers a comprehensive examination of the mortgage market meltdown and its reverberations throughout the financial sector and the real economy Explores several important issues that policymakers must address in any future reshaping of financial market regulations Addresses how we can begin to move forward and prevent similar crises from shaking the foundations of our financial system The Rise and Fall of the U.S. Mortgage and Credit Markets analyzes the factors that should drive reform and explores the issues that policymakers must confront in any future reshaping of financial market regulations.

Table of Contents

List of Illustrations xi List of Tables xxv Acknowledgments xxxiii Chapter 1 Overleveraged, from Main Street to Wall Street 1 Chapter 2 Overview of the Housing and Mortgage Markets 9 Housing Units, Mortgage Debt, and Household Wealth 9 Types of Home Mortgages 15 Two Housing Finance Models: Originate-to-Hold vs. Originate-to-Distribute 22 Low Interest Rates Contribute to Credit Boom and Record Homeownership Rates 29 Mortgage Originations, Home Prices, and Sales Skyrocket 36 Chapter 3 Buildup and Meltdown of the Mortgage and Credit Markets 41 What Is a Subprime Mortgage and Who Is a Subprime Borrower? 42 Subprime Lending Grows Rapidly and New Products Gain Acceptance 46 Subprime Mortgages Enable More Widespread Homeownership 56 Securitization Facilitates the Funding of Subprime Mortgages 61 The Housing Bubble Reaches the Breaking Point 65 The Collapse Begins 74 Chapter 4 When Will the Crisis End? 101 What Is the Damage Scorecard to Date? 102 The Pain Spreads throughout the Financial Sector and Beyond 112 When Will We Hit Bottom? 135 Chapter 5 What Went Wrong . . . ? 143 . . . with Origination Practices and New Financial Products? 145 . . . with Securitization and Rating Agencies? 153 . . . with Leverage and Accounting Practices? 160 . . . with Fannie Mae and Freddie Mac? 172 . . . with Tax Benefits for Homeownership? 182 . . . with Regulation and Supervision? 184 . . . with the Greed Factor? 204 Assessing the Role of Various Factors to Explain Foreclosures 207 Chapter 6 So Far, Only Piecemeal Fixes 219 The Landscape Shifts for Lenders 220 The Federal Reserve Intervenes to Provide Liquidity and Higher-Quality Collateral 231 Congress and the White House Take Steps to Contain the Damage 249 The FDIC Takes Steps to Instill Greater Confidence in Depository Institutions 269 The Government's Actions Drive up the Deficit 274 Chapter 7 Where Should We Go from Here? 287 Key Factors That Should Drive Reform 289 Issues for Policymakers 293 Concluding Thoughts 319 Appendix 321 Endnotes 445 Glossary 451 References 479 About the Milken Institute and General Disclaimer 507 About the Authors 509 Index 513

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