If anything symbolizes the American dream, it is homeownership—an asset that is viewed as part of a route from poverty and exclusion to independence and responsibility. However, as detailed in Part I, for over a century, state and federal governments worked to racially segregate American neighborhoods, promoting homeownership for whites while denying it for African-Americans. The result is that decades after discriminatory treatment in housing was outlawed, the homeownership gap between minorities and whites remains large.
Such a shameful condition motivated many well-meaning activists to pressure government housing authorities to expand homeownership opportunities to minority and low-income residents. The left saw this as a way to reduce discrimination and marginalization, solving the problems of past racism. The right saw it as a way to build an “ownership society” and give low-income earners a stake in the American dream, an anti-communist tactic first envisioned by Woodrow Wilson.
From the 1990s to the 2000s, both political parties bent the federal mortgage agencies to their will, continually relaxing underwriting standards to promote homeownership. Along with historically low interest rates, this led to an explosion in subprime lending, which fueled the housing bubble and spread toxic mortgages throughout the financial system. Rather than a failure of the free market, the federal government was directly complicit in the mortgage market’s spectacular ramp-up and eventual collapse.
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