Residential Segregation 19 Flashcards
What are some of the components that made the foreclosure crisis possible?
Segregation, low interest rates, unparalleled levels of equity extraction via refinancing, and the bust of the housing bubble may have combined with overbuilding and lax regulation to make the foreclosure crisis possible.
What was the consequence of concentrating foreclosures in metropolitan areas with large racial differences in subprime lending?
Segregation racialized and intensified the consequences of the US housing bubble. Hispanic and black home owners, not to mention entire Hispanic and black neighborhoods, bore the brunt of the foreclosure crisis. (Rugh & Massey 2010)
What type of lending mechanism gave predatory loans to poor black and Hispanic households, which were easily found within segregated neighborhoods? What happened in the 80s that allowed this?
Securitized lending. Mortgage-backed securities during the 80s allowed splitting apart the origination, servicing, and selling of mortgages into discrete transactions. Banks could earn money faster by originating and selling loans than by lending and collecting interest payments over time.
How did the advent of securitized mortgages transform a bank-based intermediary credit system into a securities-based market system? And how did this effect demand for borrowers?
Under traditional systems of lending, the number of mortgages was limited by the amount of deposits a bank had on hand to lend. Under the new system, the volume of mortgages was no longer limited by deposits, but by the number of potential borrowers and investors’ willingness to purchase mortgage-backed securities. The new arrangements thus created a demand on the part of banks to expand the pool of borrowers.
