Dan Immergluck - Preventing the Next Mortgage Crisis: The Meltdown, the Federal Response, and the Future of Housing in America

Preventing the Next Mortgage Crisis

ROWMAN & LITTLEFIELD

Lanham Boulder New York London

Library of Congress Cataloging-in-Publication Data

Immergluck, Daniel.

Preventing the next mortgage crisis : the meltdown, the federal response, and the future of housing in America / Daniel Immergluck.

p. cm.

Includes bibliographical references and index.

ISBN 978-1-4422-5313-1 (cloth : alk. paper) -- ISBN 978-1-4422-5314-8 (electronic)

1. Mortgage loans--United States. 2. Mortgage loans--Government policy--United States. 3. Housing--United States--Finance. 4. Foreclosure--United States. 5. Subprime mortgage loans--United States. 6. Financial crises--United States--Prevention. I. Title.

HG5095.I453 2015

332.7'220973--dc23

2015022426

TM The paper used in this publication meets the minimum requirements of American National Standard for Information Sciences Permanence of Paper for Printed Library Materials, ANSI/NISO Z39.48-1992.

Printed in the United States of America

This book is primarily an effort to help inform housing and housing-finance policy in the aftermath of the U.S. mortgage crisis. It is also aimed at students of housing and urban policy who are interested in gaining a firmer grasp on the origins, effects, policy responses, and potential long-term consequences of the great U.S. mortgage crisis of the early twenty-first century. Besides all of the tumult and pain it caused for families and neighborhoods, the crisis appears to have also left in its wake a tremendous amount of confusion about its causes, whom it hit hardest, and what lessons we should learn from both the crisis itself and the responses to it. Now, almost a decade after the crisis reached national scale, policymakers are continuing to lay new pieces of the housing finance infrastructure that will shape not only individual families access to mortgagesand so shape their housing optionsbut also the metropolitan fabric of the United States. The housing and neighborhood choices that are open to working-class and middle-income families will be driven, in fundamental ways, by how the housing finance system is shaped by policymakers over the next decade.

A more-than-half-century struggle to increase fairness in housing and mortgage markets is threatened to be unwound due to the parlaying of misinformation over why vulnerable families ended up in foreclosure and neighborhoods were pock-marked with vacant homes. Some parties have tried to blame the crisis on hard-working families and communities of color. Others have pointed at fair housing and community reinvestment policiesironically, policies that have rarely been vigorously enforced. Some of this revisionism is trickling into (and sometimes, flooding into) ongoing policy debates about how the United States can create a stable and sound mortgage market. In these debates, issues of access and fairness are sometimes overlooked. Too often, as has been common in much of the history of financial regulation in the United States, there appears to be more concern for investors and financial interests than for the fate of modest- and middle-income homeowners and the neighborhoods in which they live.

This book would not have been possible without the help of a great many individuals and organizations. I was lucky enough to have the input of several national experts when writing an earlier paper that formed the basis for chapter 3. These included Frank Alexander, Kevin Byers, Phillip Comeau, Sarah Greenberg, Alan Mallach, Kathe Newman, Ira Rheingold, and Alan M. White. Of course, any errorsas well as all opinionsremain entirely my responsibility. I also want to thank the students who have taken my housing-policy class over the last decade or so. The discussions in that classsome of the best I have had in my teaching careerwere critical to my developing the skeletons of this book, as well as providing fertile ground for seeding key housing research questions. I have also been aided by discussions over the effects of housing finance and urban futures with two of my PhD students, Yun Sang Lee and Elora Raymond. Their excellent work has challenged me to think in new ways about the longer-term impacts of housing finance and housing policy on cities and neighborhoods. Abram Lueders provided excellent editorial assistance; the book is clearly better than it would have been without his efforts. I also want to thank the very helpful folks at Rowman and Littlefield, including Jon Sisk, Natalie Mandziuk, and Chris Basso. Lastly, and most importantly, I want to thank my familyLilly, Kate, and Annafor their support and patience during this project and at all times.

• 2MP Second Lien Modification Program

• AEI American Enterprise Institute

• AMTPA Alternative Mortgage Transaction Parity Act

• ARRA American Recovery and Revitalization Act

• ASF American Securitization Forum

• ATR Ability to Repay

• CDBG Community Development Block Grant

• CDO Collateralized Debt Obligation

• CFPB Consumer Financial Protection Bureau

• CFTC Commodities Futures Trading Commission

• CMO Collateralized Mortgage Obligation

• CRA Community Reinvestment Act

• DIDMCA Depository Institutions Deregulation and Monetary Control Act

• EESA Emergency Economic Stabilization Act

• EHLP Emergency Homeowners Loan Program

• Fannie Mae Federal National Mortgage Association

• FCIC Financial Crisis Inquiry Commission

• FCRA Fair Credit Reporting Act

• FHA Federal Housing Administration

• FHFA Federal Housing Finance Agency

• FIRREA Financial Institutions Reform Recovery and Enforcement Act

• Freddie Mac Federal Home Loan Mortgage Corporation

• FTC Federal Trade Commission

• GAO Government Accountability Office

• Ginnie Mae Government National Mortgage Association

• GSE Government Sponsored Enterprises

• H4H Hope for Homeowners

• HAFA Home Affordable Foreclosure Alternatives

• HAMP Home Affordable Modification Program

• HARP Home Affordable Refinance Program

• HERA Housing and Economic Recovery Act

• HFA Housing Finance Agency