The Debtorship Society: more Americans became "homeowners" While owning less and less of their homes.

• Author: Cavanaugh, Tim

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REAL ESTATE used to be a pretty lowbrow business. When my grandmother opened her agency in the 1950s, it was mildly groundbreaking for a lady to be involved in the grimy, pushy, mold-concealing business of hawking houses. When I accompanied my father on his own real estate agent rounds on a South Jersey barrier island during the Carter/Reagan years, the job seemed to alternate between long hours of cleaning up every form of human waste, heavy volumes of legal documentation, and brief, tense altercations with deadbeats, squatters, and shady contractors. The preferred weapon for this last exchange was a baseball bat.

If anything can be said for that less genteel age, it's that people had an incentive to reduce their vulnerabilities. To be deeply in debt was considered unwise, possibly shameful, and definitely (given what now seem like usurious interest rates) hazardous to your health. A homeowner was somebody who owned a nontrivial equity stake in his or her residence, and a down payment was 20 percent if you had good credit. Meeting those standards was viewed as admirable. Liberals and conservatives joined in lauding the energy, thrift, and good sense of the American homeowner.

Where liberals and conservatives agree, social engineering must follow. A national homeownership rate above 60 percent--a figure that made the United States the envy of the planet--was deemed too low. Why not use the government to nudge that number up?

Uncle Sam has many options for boosting homeownership rates. The simplest and most important is the tax code, which allows you to write off interest payments on your real estate holdings. But there are other tools. The real interest rate on mortgages has been shaved down by 50 basis points or more thanks to the secondary mortgage market patrolled by the ostensibly competing government-sponsored entities Fannie Mae and Freddie Mac.

Fannie and Freddie also appeared to be useful in pursuing two contradictory goals: motivating banks to lend money in formerly redlined communities while allowing the relatively rich to increase the size of their own government-subsidized loans. Since 1980 the limit on a conforming loan (i.e., one that Fannie and Freddie are willing to buy from a bank) has more than quadrupled, from $93,750 to $417,000. (This growth has been well above annual inflation, which would put the current cost of a conforming loan at less than $245,000.) And if you live in a part of America where...