The foreclosure crisis is a crisis of invisibility.
In the peak years of the foreclosure crisis, from 2007 to 2012, almost one American adult in twenty lost a home because of inability to afford the mortgage payments. That amounts to more than ten million people. Today, foreclosures continue to hamstring dreams of homeownership—and as of 2013, the rate of foreclosure in the United States was still hovering near a record high.
Sources: U.S. Department of Housing and Urban Development; Mortgage Bankers Association.
It is easy to forget that every vertical inch on this line graph represents hundreds of thousands of homeowners, each receiving an official notice that a banking institutions has initiated legal proceedings to repossess their home. But each and every foreclosure is the end of someone’s personal story.
To understand how so many people lost their homes, we have to understand how so many people came to take out loans that they could not pay back. And to understand how that happened, we have to understand why anyone was willing to lend them the money in the first place.
The answer is that for a time, the rules of the mortgage market made it profitable to lend to them. These rules were new. They replaced an old framework that dated from the Great Depression, when the federal government promoted and insured longer-term, fixed-rate, fully amortizing loans—the “plain vanilla” loans that Americans eventually came to take for granted. When policy-makers began to change the rules in the 1970s and 1980s, they encouraged investors with different motives to get into the business.
It used to be that savings and loans banks had made long-term mortgage loans in order to profit from the steady stream of interest payments that borrowers made. These lenders had a clear stake in vetting borrowers carefully to ensure that they would be able to make their payments consistently. As soon as the rules changed, however, some savvy creditors started to treat mortgage loans as a way to make a fast buck. The game was to hide risky assets in complex financial products and then pass them off as safe investments.
We Americans are sentimental about our homes—we are also deeply invested in them.
It was a game that created opportunities to profit from complexity and confusion and ultimately resulted in the housing bubble. History records investment bubbles in assets as various as tulip bulbs, spices, stuffed toys, and internet startup companies—from the perspective of the speculative investors, houses are no different in principle from internet startups or baseball cards. From the standpoint of ordinary people, however, this bubble was different. Because the thing people were speculating on in this case wasn’t just an investment on a bank’s balance sheet. It was somebody’s home.
We Americans are sentimental about our homes—we are also deeply invested in the economic values of homeownership. Some scholars have argued that American homeowners are so accustomed to using their home as financial safety nets that we should think of government-subsidized loans for homeownership as the American alternative to a European welfare state. During the peak years of the financial crisis, more than ten million Americans lost this security, joining the suddenly swelling ranks of America’s dispossessed.
And while the housing bubble itself has enjoyed its fair share of postmortems, something important has gone missing from all of this research: the people who lost their homes.
The media have shone a spotlight on foreclosed homeowners but only sporadically, and only a few at a time. They have photographed or filmed dispossessed homeowners being evicted from their homes in Cleveland, camping on the banks of the Sacramento River, resisting eviction in Boston, and breaking into and squatting in their former homes in Miami. Commentators have occasionally invoked particular images of the foreclosed to score political points. Early on in the crisis, for example, the CNBC commentator Rick Santelli decried any federal rescue plan that would use tax revenues to save “losers” who took out bad mortgages; his tirade on a Chicago trading floor, broadcast live on television, would become a watershed moment for the Tea Party.
Much of the public commentary on the foreclosure crisis has rested on this sort of crude typecasting. In one stereotypical story, the foreclosed are innocent victims who were exploited by greedy bankers and middlemen. There are certainly examples that seem to fit this story. The Princeton economist Alan Blinder, for example, tells the story of Alberto and Rosa Ramirez, “a pair of Mexican American strawberry pickers in California whose annual income was in the $12,000 to $15,000 range and whose English was marginal at best.” The Ramirezes were “egged on and assisted by an unscrupulous real estate broker in search of a big commission” into taking out a $720,000 mortgage that they could not possibly afford. It was not long before the owner of the mortgage foreclosed on their new home. Maybe the Ramirezes should have known better than to take out that loan. But most people who read their story will probably agree that they were victims of a scam.
In another stereotypical story, the foreclosed were unscrupulous and greedy borrowers who took advantage of lax lending terms to live a life of luxury that they could not really afford. It is possible to find people who seem to fit this story, too. In a Forbes Magazine story on the foreclosure crisis, for example, the reporter Morgan Brennan tells the story of Terrell Owens, who “has faced foreclosure on not one, but five homes around the country”—including “two units in a swank high rise called the Azure,” two more on prime real estate in downtown Dallas, and a “posh pad” in Sunny Isles, Florida, that sold at auction for $1.65 million. Owens is a former wide receiver for the Dallas Cowboys who starred in his own reality TV program on VH1, The T.O. Show. He is reported to be unpopular with his former teammates. He has had children with four different women and he is also reported to be estranged from all of them. According to at least one public opinion poll, he is one of America’s “most disliked athletes.” It is probably hard for most readers of Forbes to muster much sympathy for his financial woes. Many people who read this account will assume that Owens is culpable for borrowing irresponsibly.
Stories like these inform our mental pictures of the foreclosure crisis—but stories like these stick in the memory precisely because they are so atypical. All of this press coverage and debate might lead us to think that we already know all about the dispossessed but, in fact, most people who lost their homes are neither poor farmworkers like the Ramirezes nor celebrity millionaires like Owens. Scratch the stereotypes and you will find little real information behind them.
The truth is that policy-makers and commentators barely know anything about the dispossessed Americans—who, with respect to most visible characteristics, are socially and demographically similar to the rest of the adult population of the United States. And yet, the stereotypical image of mortgage borrowers as somehow exceptional—exceptionally irresponsible, or avaricious, or unintelligent—made its way into congressional debates and may be one of the reasons that Congress never passed an effective rescue plan.
This essay is adapted from Foreclosed America, forthcoming from Stanford University Press.
Isaac William Martin is Professor of Sociology at the University of California, San Diego, where he also teaches in the urban studies and planning program. He is co-author, most recently, of Foreclosed America.
Christopher Niedt is Associate Professor of Sociology and Applied Social Research at Hofstra University. He is co-author, most recently, of Foreclosed America.
Cool article with interesting details
Posted by: mortgage foreclosure | March 19, 2015 at 10:21 AM