March 20, 2024
Contact: ASA Communications Department, [email protected]
WASHINGTON, DC—Financialization—the increasing dominance of financial actors, markets, and practices in American society—has had important implications for the well-being of U.S. households since the late 1970s and has dramatically expanded credit offerings to low- and middle-income households. But it has also exposed homeowners—especially women and minority homeowners—to risky subprime mortgage loans that were more likely to enter foreclosure.
Foreclosure rates increased steadily during the 1990s and early 2000s before erupting into public consciousness during the 2007–2012 financial crisis—the most severe worldwide economic crisis since the Great Depression. And while financialization is understood to have been a driver of the financial crisis, the relationship between financialization and mortgage foreclosure has been largely unexplored.
In the new study, “Safe as Houses: Financialization, Foreclosure, and Precarious Homeownership in the United States,” appearing in the April 2024 issue of The American Sociological Review, author Walker Nelson Kahn, University of Wisconsin-Madison, identifies mortgage foreclosure as a nexus connecting macro-level financialization to an array of downstream consequences for homeowners. He also examines how mortgage securitization, a key technology of financialization, enables new foreclosure practices, and how these practices affect housing precarity among homeowners at risk of foreclosure.
Conducting a case study of mortgage foreclosure litigation in Cook County, Illinois, between 1992 and 2006, the author integrated statistical analysis of court records with interviews of attorneys and judges, trade publications, and industry datasets to “generate a causal narrative of the coevolution of mortgage securitization, foreclosure, and housing precarity.”
The author found that from 1992 to 2006, annual foreclosures in Cook County increased by more than 250 percent, with more than 15,000 residential foreclosures filed in 2006. The time it took to complete the foreclosure process decreased by more than 20 percent during this period, meaning homeowners were forced from their homes almost three months earlier in 2006 than they had been in 1992. Faster foreclosure meant that distressed borrowers had less time to save their homes, find new work or new housing, or simply stay in their homes while they handled an immensely personal crisis. It also financially benefited loan administrators and their foreclosure attorneys.
Through his interviews with judges and attorneys involved in foreclosure litigation, the author found that mortgage securitization severed ongoing social and economic relations between borrowers, lenders, and their communities and allowed the loan administrators that managed securitized mortgages to profit from the foreclosure process, even if borrowers and investors lost. This transformation heavily incentivized loan administrators and their attorneys to reduce borrower protections.
The author describes his work as breaking “new ground in research on foreclosure, financialization, credit, debt, precarity, and housing by examining foreclosure as a social process, and shows that changes in foreclosure enabled by financialization and securitization directly increased housing precarity for homeowners at risk of foreclosure.”
“Borrowers’ rights impose costs on mortgage creditors, both because the legal processes they mandate are expensive, and also because they slow down the process of seizing and reselling mortgaged real estate,” says Kahn. “As the financial industry has become more powerful, their efforts to improve profitability by degrading borrowers’ legal protections may become more successful. We have already seen borrowers’ rights reduced in areas like bankruptcy, student loans, and mortgage foreclosure. Policymakers and creditor interest groups point out that stronger collections laws reduce the cost of credit and increase the supply—which is true—but at the same time, it incentivizes lenders to make risky loans that are more likely to harm borrowers in the long run. Further, the power differential between heavily indebted consumers and powerful creditors enables collections practices that are abusive and sometimes even illegal. By turning a blind eye to the erosion of borrowers’ rights, we incentivize the worst actors to be even more predatory, because they know they can shift more losses onto borrowers.”
For more information and for a copy of the study, contact [email protected].
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About the American Sociological Association and the American Sociological Review
The American Sociological Association, founded in 1905, is a nonprofit membership association dedicated to serving sociologists in their work, advancing sociology as a science and profession, and promoting the contributions to and use of sociology by society. The American Sociological Review is ASA’s flagship journal.