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date: 16 February 2025

The American Housing Finance System: Structure, Evolution, and Implicationslocked

The American Housing Finance System: Structure, Evolution, and Implicationslocked

  • Yongheng Deng, Yongheng DengWisconsin School of Business, University of Wisconsin-Madison
  • Susan M. WachterSusan M. WachterThe Wharton School, University of Pennsylvania
  • , and Heejin YoonHeejin YoonWisconsin School of Business, University of Wisconsin-Madison

Summary

The U.S. housing finance system has been characterized by fixed-rate, long-term, and high maximum loan-to-value ratio mortgage loans, with unique support from secondary market entities Ginnie Mae and the government-sponsored enterprises, Fannie Mae and Freddie Mac. The authors provide a comprehensive review of the U.S. housing finance system, from its structure and evolution to the current continuing policy debate. The “American Mortgage” provides many more options to borrowers than are commonly provided elsewhere: U.S. homebuyers can choose whether to pay a fixed or floating rate of interest; they can lock in their interest rate in between the time they apply for the mortgage and the time they purchase their house; they can choose the time at which the mortgage rate resets; they can choose the term and the amortization period; they can generally prepay without penalty; and they can generally borrow against home equity. They can also obtain insured home mortgages at attractive terms with very low down payments. Perhaps most importantly, in the typical mortgage, payments remain constant throughout the potentially 30-year term of the loan. The unique characteristics of the U.S. mortgage provide substantial benefits for American homeowners and the overall stability of the economy. This article describes the evolution of the housing finance system which has led to the predominant role of this mortgage instrument in the United States.

Subjects

  • Financial Economics
  • Public Economics and Policy
  • Urban, Rural, and Regional Economics

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