Financing the Future: Market-Based Innovations for Growth

4. Innovations in Housing Finance

Homeownership rates in the United States reached an all-time high during the first six years of the twenty-first century, reaching across lines of class, ethnicity, and race. During the boom, American home buyers were offered a dizzying array of mortgage products, many with novel features: fixed or floating interest rates, rate lock-ins, rate resets, new choices of term and amortization, interest-only options, prepayment penalties, and easily dispensed home equity loans.

But, as we learned all too painfully, any victory laps for the financial and social policy achievements represented by wider homeownership were destined to be short-lived, as many new mortgage products failed with severe consequences. Overcomplexity ...