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 FINANCIAL CRISIS INQUIRY COMMISSION REPORT

of this increase was mortgage debt. Part of the increase was from new home pur-
chases, part from new debt on older homes.
Mortgage credit became more available when subprime lending started to grow
again after many of the major subprime lenders failed or were purchased in  and
. Afterward, the biggest banks moved in. In , Citigroup, with  billion in
assets, paid  billion for Associates First Capital, the second-biggest subprime
lender. Still, subprime lending remained only a niche, just . of new mortgages
in . 
Subprime lending risks and questionable practices remained a concern. Yet the
Federal Reserve did not aggressively employ the unique authority granted it by the
Home Ownership and Equity Protection Act (HOEPA). Although in  the Fed
fined Citigroup  million for lending violations, it only minimally revised the rules

for a narrow set of high-cost mortgages. Following losses by several banks in sub-
prime securitization, the Fed and other regulators revised capital standards.

HOUSING: “A POWERFUL STABILIZING FORCE”
By the beginning of , the economy was slowing, even though unemployment re-
mained at a -year low of . To stimulate borrowing and spending, the Federal
Reserve’s Federal Open Market Committee lowered short-term interest rates aggres-
sively. On January , , in a rare conference call between scheduled meetings,
it cut the benchmark federal funds rate—at which banks lend to each other
overnight—by a half percentage point, rather than the more typical quarter point.
Later that month, the committee cut the rate another half point, and it continued cut-
ting throughout the year— times in all—to ., the lowest in  years.
In the end, the recession of  was relatively mild, lasting only eight months,
from March to November, and gross domestic product, or GDP—the most common
gauge of the economy—dropped by only .. Some policy makers concluded that
perhaps, with effective monetary policy, the economy had reached the so-called end
of the business cycle, which some economists had been predicting since before the
tech crash. “Recessions have become less frequent and less severe,” said Ben
Bernanke, then a Fed governor, in a speech early in . “Whether the dominant
cause of the Great Moderation is structural change, improved monetary policy, or
simply good luck is an important question about which no consensus has yet
formed.” 
With the recession over and mortgage rates at -year lows, housing kicked into
high gear—again. The nation would lose more than , nonfarm jobs in 
but make small gains in construction. In states where bubbles soon appeared, con-
struction picked up quickly. California ended  with a total of only , more
jobs, but with , new construction jobs. In Florida,  of net job growth was in
construction. In , builders started more than . million single-family dwellings,
a rate unseen since the late s. From  to , residential construction con-
tributed three times more to the economy than it had contributed on average since
.