Keeping a Home: Changing Mortgage Markets and Regional Economic Distress

Abstract

In the relatively affluent post World War II period, homeownership in the United States has risen steadily to include an increasing segment of the working class. Although the extension of homeownership has helped to attenuate some of the inequalities of class and to integrate the more affluent segments of the working class into the social and political mainstream, economic and political events are threatening this historic trend. Dependent upon long term financing, homeownership has two components: keeping as well as buying a home. High and persistent rates of unemployment in old industrial areas have meant the loss of stable incomes for skilled workers, and with it, rising rates of home mortgage delinquency and foreclosure. To examine the threat to continued homeownership, this paper locates homeownership in its structural context, at the intersection of major changes in financial institutions (deregulation) as well as local economic and industrial change.

Our research suggests that regional economic difficulties are being exaccerbated by national deregulatory trends. We found that deregulation has facilitated a general movement from a local to a nonlocal mortgage market. This includes the growth and privatization of the secondary mortgage market and the repositioning of lenders in the local market. We found that delinquent homeowners with locally held and serviced mortgages were better able to negotiate forebearance with their lenders for reasons ranging from the ability to exert public pressure to the economic self-interest of local lenders. Except for FHA mortgages, delinquent homeowners with nonlocal mortgages were penalized. For blue collar workers, the loss of a home more than the loss of a job removes an important class buffer thus reversing a post World War II trend.     

Reverse Mortgage Fraud Against Seniors: Recognition and Education of a Burgeoning Problem

With the senescent population and the popularity of aging in place, many seniors are attracted to reverse mortgages to plan for retirement and to maintain their existing housing situation. Although theoretically reverse mortgages represent a viable investment product for those considering retirement, several pitfalls are possible for seniors, who can be unsuspecting victims of fraud. This article provides information detailing the etymology of fraud activities within this market through a storyboard that depicts the various stages of the fraud process. It is hoped that such a tool can enhance the education of consumers on this mortgage product.     

Kafkaesque Bureaucracies as Natural Breaching Experiments: Interactional Failures and the Search for Institutional Agency

In accord with scholars who have suggested extending the symbolic interactionist perspective to investigate interactions with macrolevel structures, we argue that symbolic interactionism provides valuable tools to understand how bureaucratic breakdowns are interpreted by individuals. In this article, we use the experience of interacting with a Kafkaesque bureaucracy as a natural breaching experiment in order to outline the subjective effects of large‐scale institutional failure. In particular, we look at homeowners' interpretations of a flawed program initiated by the Obama administration to stem the tide of foreclosures. We conclude that persistent interaction failures with the bank divisions charged with modifying mortgages led frustrated and confused homeowners to question the nature of the bureaucratic interaction. This produced a search for a blame‐worthy agency and revealed the ways that agency was conceptualized in this complex and obscure institutional setting.     

Subprime Loans: A Reversal of Capital and a New Means of Inequality

This article provides a socio-historical analysis of particular financial instruments in the housing market. I argue that the production and consumption of subprime loans continue to evince a pattern of racial discrimination. Whereas racialized loans in the mid-1900s were based on providing credit to whites and precluding blacks from accessing credit (Wave I), a new means of financial production was predicated by the opposite (Wave II). Although the first wave of home ownership led to real increases in wealth, the second wave led to a housing bubble that resulted in less or negative wealth. Under the subprime era, banking institutions could reap profits when homeowners paid their loans on time or defaulted. White homeowners continued to fare better than black homeowners.     

Strengthening senior tax credit programs in Massachusetts

In the last decade, property taxes have increased, creating a financial burden on senior homeowners. In Massachusetts, senior property tax credit programs have arisen to address this problem, as well as to provide cost-effective volunteer assistance for municipal departments, offer seniors meaningful work that otherwise would not have been attempted, and foster involvement in municipal government among seniors. The success of the programs in retaining senior homeowners in the community remains to be evaluated. Program specifics are detailed, policy options are considered, and recommendations are made to strengthen existing programs and assist replication.     

“It Depends on How You Define Integrated”: Neighborhood Boundaries and Racial Integration in a Baltimore Neighborhood1

There are a significant number of racially integrated neighborhoods in the United States, many of which have been stable over time. However, very little is known about the characteristics of these neighborhoods and of the residents who live in them. With data taken from a larger study of an integrated neighborhood in Baltimore, Maryland, this article discusses homeowners’ perceptions of their community and racial integration. Fifty semi‐structured interviews were completed with 67 homeowners to investigate their perceptions and experiences of race, class, and change in their community. This study shows that statistical racial integration and perceptions of racial integration are two different factors. Residents define true racial integration as both residential and social. As a result, homeowners reported that their neighborhood is both segregated and integrated—a type of “qualified” integration. Perceptions of racial integration are also affected by inconsistently defined neighborhood boundaries and racial clustering, block by block.     

Parental transfer of financial knowledge and later credit outcomes among low- and moderate-income homeowners

It is well established that acquiring financial skills during childhood is linked with better savings in adulthood. Little is known, however, about the relationship between parental teaching of money management early in life and children's financial outcomes in adulthood. This is particularly true for low- and moderate-income (LMI) households. Using data from Community Advantage Program survey data for 2,389 LMI homeowners, we find that adults who report receiving high levels of money-management teaching in childhood from their parents are associated with higher credit scores and lower credit card debt in adulthood. We also find that the level of parental financial teaching influences the relationship between children's later educational attainment and credit scores. These findings suggest implications for initiatives promoting financial capability for parents and children.     

Strengthening Senior Tax Credit Programs in Massachusetts

Summary

In the last decade, property taxes have increased, creating a financial burden on senior homeowners. In Massachusetts, senior property tax credit programs have arisen to address this problem, as well as to provide cost-effective volunteer assistance for municipal departments, offer seniors meaningful work that otherwise would not have been attempted, and foster involvement in municipal government among seniors. The success of the programs in retaining senior homeowners in the community remains to be evaluated. Program specifics are detailed, policy options are considered, and recommendations are made to strengthen existing programs and assist replication.     

Social Work in the Campaign Against Predatory Consumer Financing: An Interview with Shawna Reeves

Subprime mortgages and related financial fraud triggered the United States economy's meltdown and Great Recession of 2007. In this interview, Eve Ekman engages Shawna Reeves, a social worker who is carving out a career in protecting elders from deceptive mortgage deals and other personal finance scams. Reeves describes her own professional path, connects direct practice and policies for reform, and encourages young social workers to take up this challenging field that is at once as new as the recent deregulation of the finance industry and as venerable as Hull House.     

DISTRIBUTIVE CONSEQUENCES OF A PROPERTY TAX REVOLT

Voters who support tax limitations measures such as California's Proposition 13 seem to feel that their expected gains more than compensate for whatever costs may follow from a successful tax revolt. Costs can arise from a decline in government services or from an increase in some replacement tax if service levels are maintained. This paper estimates the perceived and actual incidence of a property tax revolt under alternative assumptions about voter perceptions and eventual outcomes. Our results suggest that the most visible benefits of a tax cut favor low-income homeowners. In the event of government budget cutbacks, it is possible that the distribution of services is sufficiently skewed toward low-income groups to reverse the incidence of a property tax revolt.     

Boom and bust: housing equity withdrawal and consumption decisions and their impacts on household wealth

The authors examine whether the surge in housing refinance and equity withdrawal generated by the housing boom disproportionately affected older households in terms of decisions on whether to refinance, whether to withdraw equity, and how much to withdraw, and how in turn these decisions affected their household wealth. Using the Federal Reserve's Survey of Consumer Finances, the authors found the highest rates of refinancing and cashing out equity among older (although not necessarily the oldest) households. The authors also found that appreciation in house value, being a baby boomer, and having higher household income were the factors that most increased the probability of refinancing and withdrawing equity. Amounts cashed out were higher among older than among younger households. Ordinary least squares (OLS) estimates showed that amounts withdrawn were increased by price appreciation, financial assets, and income, along with being a "pre-boomer" or "early boomer." Older cohorts displayed larger wealth effects than younger ones, but their withdrawn equity was a smaller percentage of total net worth. A relatively small percentage of respondents' dollars was used for consumption, and most dollars were used for home improvement, other investment, or debt repayment. However, massive equity withdrawal and the subsequent collapse of housing prices have caused housing leverage to soar, putting some homeowners "underwater" and jeopardizing others' retirement preparedness. The ensuing housing finance crisis raises numerous policy issues, from reform of mortgage underwriting, securitization, servicing, and foreclosure procedures, to potential limitations on borrowing against unrealized housing equity gains, to enhanced government transfers for distressed older homeowners, to local and state revenue policy changes.     

Which Elderly Home Owners Are Interested in Accessory Apartment Conversion and Home-Sharing

Previous researchers have found high levels of demand for, and utilziation of housing programs by the better off elderly. This pattern of self-selectivity is not shown in the present article which examines the determinants of interest in accessory apartment conversion and homesharing among a sample of elderly homeowners in the Baltimore metropolitan area. Respondents who were under financial stress, as indicated by large uninsured medical expenses, and who were in poor health, were especially interested in these programs. The results indicate the importance of implementing accessory apartment conversion and homesharing in conjunction with counseling, low interest housing rehabilitation loans and other ancillary services.     

Product option framing under the influence of a promotion versus prevention focus

Investigations into the option framing effect involve the use of a subtractive versus an additive option-framing method to gauge their impact on consumer behaviors. This research examines how option framing could affect choice decisions as a function of a consumer’s goal orientation. Study 1 offers convergent support for the proposition that regulatory focus moderates the option framing effect and the mediating role of action/inaction on the relationship between regulatory focus and the option framing effect. In particular, a reverse finding shows that promotion-focused consumers provided with a +OF options list tend to choose more options than those who are given a −OF option list. To explain the reverse effect, Study 2 examines and demonstrates regulatory fit as a possible moderator. The results of Study 2 also confirm our inference and echo the same results of Study 1. Finally, based on the regulatory fit theory, Study 3 examines if cognitive constraints associate with a consumer’s regulatory orientation may also account for the interaction between regulatory focus and option framing. The results of Study 3 also support the proposition.     

On Home Equity Conversion Mortgages for Elderly Homeowners

Analysis of reverse mortgage plans for elderly homeowners indicates that the compound interest charged by the lenders would capture more than half of the equity of the homeowners. The lenders further ask that the Federal Housing Administration (FHA) insure them against risks of unexpected longevity of the borrowers, creating an inderterminate risk to FHA.     

Social and Psychological Barriers to Private Retirement Savings in Hong Kong

Using a phone survey conducted among Hong Kong workers, we examined the association of institutional, social, and psychological factors with engagement in both private retirement savings and the total amount of savings. Alarmingly, this study demonstrates that approximately 42% of Hong Kong workers do not save privately for their retirement. We found that age, education, number of children, support from spouse and friends, social regulation, perceived financial knowledge, and financial management capacity are associated with engagement in private retirement savings. Among those who saved, age, education, perceived financial knowledge, and financial management capacity are related to the amount of savings. Measures that could increase the social support for retirement savings as well as enhance their financial knowledge and management ability should be developed and implemented so that more workers engage in private retirement savings. A promising policy option for the Hong Kong government is to offer a tax incentive to promote additional savings for old-age income protection.     

BUYING THEIR VOTES? A STUDY OF LOCAL TAX‐PRICE DISCRIMINATION

A population's demographic composition may affect political support for various public services. This article examines whether the aging‐in‐place of local residents decreases financial support for public schools in the United States. I expand on previous empirical work by examining whether tax‐price reductions offered to elderly homeowners moderate their effect on local school revenues. The results reveal that an aging population structure substantially decreases school revenues, unless elderly homeowners receive state‐financed reductions in their local tax‐prices. Sizable differences hold even when comparing school districts located near each other but on opposite sides of state borders. Given the imminent aging of the population structure in the United States and many other developed countries, governments' targeted tax reduction policies could have important effects on equilibrium school revenues. (JEL I22, J14, H71)     

Subsidized Elderly Housing

Starting in the early 1960s, the federal govenunent joined with the private-sector housing developers in a partnership: in return for subsidized mortgages and tax benefits, developers would rent to low- and moderate-income tenants. Today, many elderly people live in these "publicly subsidized" units. The initial agreement, however, held out an escape clause: after 15 to 20 years, for-profit developers that wanted to end the partnership could prepay their mortgages, leaving tenants in those buildings "at risk" of rent increascs and/or evictions. This article discusses that partnership, its options for dissolution, and the current solutions to the problem of the expiring agreements, including a moratorium, vouchers, and incentives. The compromise legislation responds to all interested parties- owners, current and would-be tenants, local governments, taxpayers- through a multi-stage sequence of dissolution, yet such a finely tuned, acutely sensitive legislative solution may not work easily or efficiently.     

A social-psychological analysis of residential electricity consumption: the impact of minimal justification techniques

To explore the impact of the foot-in-the-door technique on residential energy conservation 66 homeowners were asked to curtail their consumption of electricity by 10%. In the Foot-in-the-Door condition this target request was preceded by a more moderate one to answer a short energy conservation questionnaire. Homeowners in the Second Request Only condition simply received the conservation request while those in the First Request Only condition received the questionnaire alone. These groups were compared to a Control group of homeowners who were never asked to comply to either request. The groups did not differ in electricity consumption during the 2 week baseline period or in their percentage change from baseline during the 4 week request period. However, throughout the 12 week follow-up period homeowners in all three request groups consumed significantly less electricity than Controls. In addition, the Foot-in-the-Door group contained significantly more Conservers than any other group. These findings were contrasted with the results of behavioral energy studies emphasizing strong external justifications. The implications of minimal justification techniques for producing long-term maintenance of energy conserving behaviors and for promoting their occurrence across a large population of individuals were also discussed.     

Subsidized elderly housing: public-private partnerships on the brink

Starting in the early 1960s, the federal government joined with the private-sector housing developers in a partnership: in return for subsidized mortgages and tax benefits, developers would rent to low- and moderate-income tenants. Today, many elderly people live in these "publicly subsidized" units. The initial agreement, however, held out an escape clause: after 15 to 20 years, for-profit developers that wanted to end the partnership could prepay their mortgages, leaving tenants in those buildings "at risk" of rent increases and/or evictions. This article discusses that partnership, its options for dissolution, and the current solutions to the problem of the expiring agreements, including a moratorium, vouchers, and incentives. The compromise legislation responds to all interested parties--owners, current and would-be tenants, local governments, tax-payers--through a multi-stage sequence of dissolution, yet such a finely tuned, acutely sensitive legislative solution may not work easily or efficiently.     

Unlocking Housing Equity for Pensions in Urban China

This article examines the extent to which a reverse mortgage may improve the income of an elderly household. This question is analyzed in the context of an aging society where the existing Confucian contract of filial piety has been eroding with the advent of economic and demographic transitions underway in contemporary China. We use data from a China Household Finance Survey that was administered in 2011 covering 949 elderly households from 22 provinces. We use models from the literature to calculate the incremental gains to income from the use of a reverse mortgage. The findings are revealing in terms of the potential gains from the use of reverse mortgages. On average, an elderly homeowner makes a monthly mortgage payment of RMB ¥1,383; a reverse mortgage for the same household raises monthly income by RMB ¥1,388 or 29%. The major beneficiaries of a reverse mortgage are single and elderly individuals possessing significant housing equity and living in the more developed regions. Overall, the reverse mortgage provides a means for society to allow the elderly access to income without being a burden on the state.