A Brief History of Bad Housing-Finance Policy

Patrick Brenner cogently argues “

The Case Against 30-Year Mortgages” (op-ed, Oct. 9), but a fuller history is in order. The Federal Housing Administration began offering such mortgages for new construction in 1948 and for existing homes in 1954, not the 1930s. Its mission: “The possession of a home, free and clear of all debt at the earliest possible date, should be the goal of every American family.”

In 1954 FHA loan terms averaged 21 years, and down payments averaged 20%. Defaults rounded to zero, and mortgage burning was common. The intense period of liberalization of loan terms that began that year was the result of federal monetary decisions made to help finance World War II. The Federal Reserve was pressured by the U.S. Treasury to buy, if necessary, sufficient debt to keep the prices from falling below par. This kept rates fixed and low, and FHA rates averaged about 4%.