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.