However, most individuals who are losing their homes are not speculators, they are families who struck a deal to improve their living conditions and shore up their personal economies by trusting the booming housing market, always assuming that the growth of equity in their homes would cover the mortgage when their incomes could not. Often, critics cite homeowners for "living beyond their means," an interesting critique considering the personal savings rate since 2005 is negative, so in a sense everyone is living beyond their income. Mortgage companies would assist in this process by assuming unrealistic growth in future income, maybe assuming there would be a boarder to help expenses, and by adjusting the value of the property.

Other players in the blame game are homeowners blaming the mortgage industry itself. They consist primarily of proponents of minority groups especially affected by the crisis, and one of the most visible of these groups is Rev. Jesse Jackson's Rainbow/PUSH Coalition. Like the organized, national civil rights movement he participated in for decades, Jackson invokes the need for legislation to impose equality and fight against the structural instruments that lead to segregation.

At a summit in New York City last January, Jackson argued, "This [the sub-prime crisis] is not about literacy, not about ignorance...most foreclosures result from shady products that have been promoted by sub-prime lenders ultimately financed by wall-street." Jackson's ally, Queens Councilman James Sanders uses even stronger language, "We've been robbed by these companies, and they are preying on decent, working-class people. These companies don't need to lend money to those they know cannot pay it back." For Jackson and his supporters, discriminatory institutions caused the crisis, and especially the disproportional burden carried by minority borrowers. Within the African-American community, banks shifted, within a generation, from withholding all mortgage credit to offering too much under poor terms.

A third side blames the banks, but generally places them into a broader structural failure that includes lax governmental oversight. Neil Peirce, writing in the Charlotte Observer, states, "Is there a villain in this story? Yes, and it is hidden in plain view: a heavily lobbied federal government that lost sight of ordinary Americans' interest." Peirce and his allies argue that the federal structure/system of mortgage institutions—such as the FHA and Fannie Mae—ushered in a new market that empowered mortgagees to squeeze more profit out of the system, and that federal regulators (and regulations) largely ignored what they were doing. While such programs as the Community Reinvestment Act require some banks to be more equitable in their lending, non-bank mortgage brokers especially are able to operate beyond the government pale.

Many of these critics argue for a return to New Deal-style regulations, citing strong growth in homeownership and a stable, upward growing housing market. However, those rules had very uneven effects for different demographic groups, and were only effective at a specific historical moment when there was an undeniable, long-term demand for housing. It was, we should remember, an overall drop in home sales that prompted and exacerbated the sub-prime crisis.

The Government Comes to the Rescue. Sort of.

The simplest solution to the crisis is to do nothing. That is, put 2 million homeowners and their families on the street and endure the long-term ripple effects through the rest of an economy already suffering from other recessionary problems. In this scenario, banks will have to change their practices to remain profitable, because it is in their best interest to keep borrowers in their homes, making monthly payments. The non-government sectors of the secondary mortgage market, however, are not quite as likely to operate with those goals in mind.

Regardless of one's political orientation, the do-nothing solution is unpopular because it goes against over 70 years of promoting homeownership as the goal for every American. It also might take too long for the banks to adjust, prompting some form of government intervention. States hit hardest by the mortgage crisis, such as California and Michigan, have started the process of passing legislation designed to mitigate the problem. Generally, these programs take into account all of the critiques offered, ranging from a predatory mortgage market to an uninformed homeowner population, and include provisions for oversight, direct economic relief or imposed grace periods to the borrowers, and required enrollment in education programs. Some states and municipalities are attempting to sue banks. Cleveland is claiming in a lawsuit that these poor lending practices "created a public nuisance that hurt property values" and limited tax collections.

The federal government is also getting in on the act. The most prominent of these is President Bush's Mortgage Plan. The main thrust of the Bush plan is to encourage banks to freeze the low rates for five additional years. It says nothing about debt forgiveness and would require banks to offer education programs to the borrowers who enrolled in the program, the subset of homeowners between "too rich for help," and "hopeless."

It is wrong to think of this program as the federal government riding in to the rescue. Tom Deutsch, a banking industry leader, emphasized the voluntary nature of the program. "This is not a government bailout program," he said. "This is an industry-led framework for providing the best market standards and practices. There is no mandate here." The Federal government, during the Clinton administration, severely cut the direct outreach that would help individuals, and now depend on granting money to NGOs such as the Hope Now Alliance to help individuals in the mortgage crisis.

Congress is also addressing the problems through a variety of plans that have yet to go anywhere. Some of these proposals call for greater regulation and oversight, while others offer help that is more direct. One of them wants to reinstitute HOLC, citing the assistance that group offered during the Depression and its profitability to the government. In the 2008 election campaign, the candidates tow party lines. Sen. John McCain wants to continue the federal government's plan to offer indirect help, but offer no new regulations or individual assistance. Democratic candidates Sen. Barack Obama and Sen. Hilary Clinton want to offer slightly different versions of minor tax credits, financial literacy programs, and a fund to help avoid foreclosures.

The current mortgage crisis is complex. Looking at the past century of mortgages illustrates this particular crisis in relation to problems and responses during the Great Depression. The two-tier homeowner population fostered by government policies persists today and remains at the crux of the mortgage problem that policymakers and the public now face. Only an understanding of how a century of government and financial policies created the mortgage market in the United States today can force adjustments to these policies to deal with the totality of today's crisis.


The author would like to thank the following for helpful comments on the article: Origins Editors Nick Breyfogle and Steve Conn; Susan Hartmann, Jessica Pliley, and the other participants in Ohio State's Women's History Writing Seminar, Winter 08, and Jeffrey Davis at the Fredric G. Levin College of Law at the University of Florida. Of course, mistakes and opinions remain the author's responsibility.