American Landed Dependence: Demographic Politics and the Spread of Home Equity Extraction, 1970-1995

Luis Flores, University of Michigan

Renewing their attention to wealth inequality, scholars of stratification often note that homeownership constitutes the primary source of wealth for American households. Chief among the benefits of home wealth is its “private insurance” function, allowing owners to tap into home equity in times of emergency or to fund large expenses. However, for much of American history wealth in homes was highly illiquid—prior to the 1980s, accessing home equity required selling and vacating your home to realize its higher market value. Based on a study of congressional and administrative documents, newspapers, and industry publications, this paper traces the introduction and early spread of “equity conversion,” secondary mortgage instruments that allowed homeowners to regularly tap into their equity without parting with their primary asset. Public pressure to allow instruments for equity conversion emerged from a demographic crisis over “housing-rich but cash-poor” elders in the 1970s. The same generation whose homeownership was subsidized by postwar federal insurance programs came to rely on FHA allowances for second mortgages to extend the benefits of homeownership into retirement. Within a few years, the Tax Reform Act of 1986 and deregulations of mortgage terms incentivized expansions of equity conversion for non-elderly homeowners. By the 1990s, homeowners experienced regular access to equity, but at highly risky, volatile, and often unsustainable terms. Many of the toxic assets that circulated through the financial system in the lead up to the Great Recession originated not from new home purchases, but from the equity conversion instruments—from refinancing, home equity loans and lines of credit (HELOCs), and reverse mortgages.

No extended abstract or paper available

 Presented in Session 238. Policy and Society in the United States