Abstract: Forging a "New Era in Home Finance": Pat Brown, California Mortgage Bankers, and the Remaking of the U.S. Housing Market
Histories of the 2008 housing crisis and mortgage securitization often begin on Wall Street in the late 1970s and early 1980s. In fact, the history of mortgage securitization can be traced back to 1966, when a crisis in the California mortgage market threatened the promise of unlimited economic growth in the state, a promise central to the growth liberalism championed by Gov. Pat Brown. In early 1966, on the eve of Gov. Brown's reelection campaign against Ronald Reagan, rising interest rates on Certificates of Deposit (CDs) and financial securities drew capital away from the S&L savings accounts that financed most mortgages in the state. Instead of supporting efforts to further strengthen government interest rate ceilings in order to protect the mortgage market from competition with securities markets, the Brown administration, in conjunction with a group of California mortgage bankers, advanced plans to sell mortgages to institutional investors, particularly pension funds. By pooling mortgages together and selling shares of these pools, the state's mortgage industry could, according to the Brown administration, tap the resources of institutional investors that lacked knowledge of local real estate markets. The administration's effort would help lay the groundwork for "a new era in home finance."