265 pages

English

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Foreclosed , livre ebook

Cornell University Press - Daniel Immergluck

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265 pages

English

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Over the last two years, the United States has observed, with some horror, the explosion and collapse of entire segments of the housing market, especially those driven by subprime and alternative or "exotic" home mortgage lending. The unfortunately timely Foreclosed explains the rise of high-risk lending and why these newer types of loans-and their associated regulatory infrastructure-failed in substantial ways. Dan Immergluck narrates the boom in subprime and exotic loans, recounting how financial innovations and deregulation facilitated excessive risk-taking, and how these loans have harmed different populations and communities.Immergluck, who has been working, researching, and writing on issues tied to housing finance and neighborhood change for almost twenty years, has an intimate knowledge of the promotion of homeownership and the history of mortgages in the United States. The changes to the mortgage market over the past fifteen years-including the securitization of mortgages and the failure of regulators to maintain control over a much riskier array of mortgage products-led, he finds, inexorably to the current crisis.After describing the development of generally stable and risk-limiting mortgage markets throughout much of the twentieth century, Foreclosed details how federal policy-makers failed to regulate the new high-risk lending markets that arose in the late 1990s and early 2000s. The book also examines federal, state, and local efforts to deal with the mortgage and foreclosure crisis of 2007 and 2008. Immergluck draws upon his wealth of experience to provide an overarching set of principles and a detailed set of policy recommendations for "righting the ship" of U.S. housing finance in ways that will promote affordable yet sustainable homeownership as an option for a broad set of households and communities.

Sujets

Banking

Economie gestion

USA

United States of America

Bank

Financial services

History of the Americas

États-Unis

Informations

Publié par	Cornell University Press
Date de parution	11 février 2011
Nombre de lectures	0
EAN13	9780801458828
Langue	English
Poids de l'ouvrage	4 Mo

Informations légales : prix de location à la page 0,7500€. Cette information est donnée uniquement à titre indicatif conformément à la législation en vigueur.

Extrait

F O R E C L O S E D

HighRisk Lending,

Deregulation,

and the Undermining

of America’s Mortgage Market

D a n I m m e r g l u c k

Cornell University Press I T H A C A A N D L O N D O N

must not be reproduced in any form without permission in writing from the publisher. For

information, address Cornell University Press, Sage House, 512 East State Street, Ithaca,

New York 14850.

First published 2009 by Cornell University Press

Printed in the United States of America

Typesetting: Jack Donner, BookType

Library of Congress CataloginginPublication Data

Immergluck, Daniel.

Foreclosed : highrisk lending, deregulation, and the undermining of America’s mortgage

market / Dan Immergluck.

p. cm.

Includes bibliographical references and index.

ISBN 9780801447723 (cloth : alk. paper)

1. Mortgage loans—United States. 2. Mortgage loans—Government policy—United

States. 3. Subprime mortgage loans—United States. 4. Foreclosure—United States.

5. Financial services industry—Deregulation—United States. 6. Housing—Finance—

Government policy—United States. 7. Financial crises—United States. I. Title.

HG5095.I45 2009 332.1’753—dc22 2008052549 Cornell University Press strives to use environmentally responsible suppliers and materials to the fullest extent possible in the publishing of its books. Such materials include vegetable based, lowVOC inks and acidfree papers that are recycled, totally chlorinefree, or partly

composed of nonwood ﬁbers. For further information, visit our website at www.cornellpress.

cornell.edu.

Cloth printing 10 9 8 7 6 5 4 3 2 1

C o n t e n t s

List of Figures Preface Housing Finance, Ideology, and the Rise of HighRisk Mortgage Markets 1. U.S. Mortgage Market Development and Federal Policy to the Early 1990s 2. Mortgage Market Disparities and the Dual Regulatory System in the Twentieth Century 3. The HighRisk Revolution 4. Mortgage Market Breakdown: The Contributions of Transactional Failures, Conﬂicts of Interest, and Global Capital Surpluses 5. The Economic and Social Costs of HighRisk Mortgage Lending 6. HighRisk Lending and Public Policy, 1995–2008 Policies for Fair, Affordable, and Sustainable Mortgage Markets References Index

vii ix

47 68

133 167

197 225 241

F i g u r e s

1.1 Holders of mortgage debt in the United States, 1892 1.2 Number of building and loans in the United States, 1888–1937 1.3 Total assets of building and loans in the United States, 1888–1937 1.4 Cash ﬂows in a CMO securitization 1.5 Typical subprime CMO tranche structure 1.6 Outstanding home loans by funding source, 1952–1995 2.1 Origination market shares of by lender type, 1970–1996 3.1 Reﬁnancing and home purchase loans by subprime lenders, 1993–2004, United States 3.2 Share of ﬁrstlien highrate home purchase and reﬁnance loans that were home purchase 3.3 Rates of growth in subprime reﬁnance lending by race of borrower, 1993–1998, United States 3.4 Share of subprime loans that are no– or lowdocumentation 3.5 Increase in mean debttoincome ratios for subprime home purchase loans 3.6 The historical progression of low and zero downpayment programs 3.7 The “virtuous” cycle of highrisk lending and housing prices 3.8 Issuance of mortgagebacked securities in the AltA, subprime, and GSE markets 3.9 Highly structured mortgage ﬁnance: the organization of collateralized debt obligations

22 24

25 37 39 45 65

79 86

89 93

vii

v i i i F i g u r e s

4.1 Key transactional failures and perverse incentives in the origination and funding of securitized home loans 4.2 Fiveyear cumulative loss rates for CDOs vs. other security types for three belowAAA rating classes 4.3 Annual U.S. nonagency RMBS issuance and Moody’s stock price, 1999–2007 4.4 Growth of New Century Financial, 1996–2006 4.5 Early payment defaults for New Century loans, 2004 to early 2007 4.6 Percent of New Century mortgages that were statedincome loans 4.7 Percent of New Century loans that were 80/20s 5.1 Mortgage foreclosure rates, 1998–2007 5.2 Percent of subprime adjustable rate loans entering foreclosure, annualized rate, ﬁrst quarter 2005 5.3 Percent of subprime adjustable rate loans entering foreclosure, annualized rate, ﬁrst quarter 2007 5.4 Increases in foreclosures in the City of Chicago, 2005–2007 5.5 Percent of residential and business addresses vacant, 10county Atlanta metropolitan area

101

115

117 125

128

129 130 136

138

138 140

157

P r e f a c e

As the U.S. mortgage crisis unfolded in 2007 and 2008, issues of housing ﬁnance and of homeownership policy more generally, became frontpage news. This happened, however, not just because many people were losing their homes to foreclosure but because the banking and ﬁnancial commu nity began to suffer major losses on their investments in mortgagebacked securities and the derivatives associated with them. After some down playing of the potential scale and impact of the problems spurred by the highrisk lending boom, government ofﬁcials and regulators eventually saw that decades of deregulation in the ﬁnancial services industry—accom panied by the aggressive preemption by federal reg ulators of state regulations—had come home to roost. Moreover, the arguments that mortgage transactions are best left to “free exchange” between borrowers and lenders—with government relying primarily on a weak system of consumer disclosure to prevent excessively risky lending—were called into question. And the social and public cost of mortgage market excesses and failures became painfully obvious as vacant buildings spread, credit markets seized, and national economies collapsed. This book is an effort to tell a more nuanced story than has been told in many treatments of the recent crisis and, in particular, to place the events in the context of the longer history of institutional mortgage markets in the United States. This history shows that many successful and sustainable developments in these markets were the result of a mixed economy approach to housing finance that included the substantial involvement of the federal government both in the regulation of home loans and in investing in fair, sustainable, and risklimiting mortgage products and systems. As the nation moves forward with deciding what to do about mortgage market regulation and government involvement in secondary markets, it is critical that we have a keen knowledge of this history and an understanding of how mortgage markets actually work on