The creation of Freddie Mac in 1970 to buy conventional mortgages and the 1970 privatization and expansion of Fannie Mae, which had been established as a government agency in 1938 to buy only Federal Housing Administration loans, "helped equilibrate the mortgage rate," [Frank E. Nothaft] said.

"As long as interest rates were stable, as they were from the 1950s to the mid-1960s, the depository model of housing finance worked reasonably well," said a Freddie Mac report. But when short- term interest rates jumped, the system jammed, according to Freddie Mac's analysis.

The selling of mortgage-backed securities on Wall Street has become routine. "The growth and development of the secondary mortgage market helped smooth out the process," [John A. Tuccillo] said. Investors are no longer small S&Ls worried about the risks of financing an individual house. The secondary market sells hundreds of loans at a time to pension funds, unions and other big investors who are insulated from the risks.