The American dream of homeownership is a reality for a record number of families because community bankers are doing their jobs.
Our record rate of homeownership has become the envy of the world. From nations all over the globe, government officials, bankers, builders, and community leaders come to the United States to find out how our nation has been able to create so many homeowners in such a relatively short period.
They discover that a major part of the answer involves prudent public policy decisions.
In the earliest days of our republic, selling public land to raise revenue was strongly supported. As the population grew and moved west, petitioners asked that land in the public domain be given free to settlers willing to work it. In the 1830s eastern laborers and reformers of all stripes began to join in pressing for a Homestead Act.
Yet there was always significant opposition to the homestead movement. Eastern employers did not want workers to have the option of leaving low-paying jobs to farm in the West, and eastern landowners feared the threat to land values posed by a huge public domain available free to anyone willing to settle it.
After decades of fierce debate, the Homestead Act was signed into law in 1862. The measure was a success. By 1900 more than 80 million acres had been claimed by 600,000 homesteaders.
Obstacles to growth in the real estate sector persisted, however. The National Bank Act of 1863 specifically prohibited national banks from making real estate loans. This restriction was repealed five decades later with passage of the Federal Reserve Act of 1913, which authorized national banks to make mortgage loans.
During the Great Depression a shortage of building and mortgage credit was painfully obvious. To help meet this credit need, the Federal Home Loan Bank Act was signed into law in July 1932.
To further increase the mortgage markets liquidity, Fannie Mae was created a few years later. Working with community lenders, Fannie and the Federal Home Loan banks revolutionized the housing industry by pioneering the then-novel lower-down-payment, long-term, conventional, amortizing residential mortgage instrument that has become the foundation of homeownership in America.
Today we take the 30-year mortgage for granted, but it is still not available in Canada, France, Germany, Great Britain, or Japan.
However, the 30-year mortgage transformed the lending industry. During the early 1940s, 43.6% of Americans owned their own homes. By 1950, 55% had achieved this dream.
Today the homeownership rate stands at 67.2%, and the Department of Housing and Urban Development predicts that it may soon reach 67.5%.
We moved from 55% in 1950 to where we are today because, during the late 1960s and early 1970s, people in the home lending industry continued to innovate. Because of the expansion of the secondary mortgage market, the mortgage banking industry became a significant generator of loans.
Congress converted Fannie Mae to a private company with some government connections in 1968. Two years later Freddie Mac received its federal charter.
By these actions, Washington decision makers combined the best of public- and private-sector attributes to form an efficient group of enterprises that advanced the goal of widespread homeownership. They are government-sponsored but privately capitalized and owned.
Fannie, Freddie, mortgage bankers, community bankers, and the Home Loan banks all worked with Wall Street, mutual fund managers, and investors to create and develop the secondary market and the industry is successful. The lower interest rates, lower risk, and broader availability of these loans have significantly increased the volume of funds in the mortgage market and enhanced all types of home borrowing.
When the Home Loan banks were established, people did not know whether they would be able to get a mortgage. Today the homebuyer has a wide variety of mortgage products from which to choose. This consumer choice for the homebuyer is a given.
With consumer choice goes an uninterrupted flow of mortgage credit and continual economic growth, even during troubled times in the financial cycle.
Now as we work together to maintain our home lending system as the envy of the world, will there be bumps in the road? Absolutely. Just as in earlier periods, special interests organize themselves to roll back government homeownership incentives. They whisper that Americans are housed too well and warn that we spend too much on housing.
We must remember that those who fought to enact the Homestead Act did so when there was a national Know-Nothing Party. That type of thinking continues today. They still dont know anything, but at least they do not have a party.
The success and resiliency of the U.S. housing finance system did not happen by chance. These qualities grew out of a clear national policy to promote competition, homeownership, and affordable rental housing. Generation after generation of fighting the public policy battle produced these gains.
Citizens like us have carried the battle to public policymakers before. This is an election year, and it is an excellent time to close the deal with candidates running for Congress. Meet the people who are standing for election. Remind them that homeownership creates strong families and neighborhoods and that it also produces 20% of our gross domestic product.
Ask those who want your vote to pledge their support for homeownership and preserving the government-sponsored enterprises.
Mr. Dellibovi is president of the Federal Home Loan Bank of New York
