Abstract

About the speaker: Alex F. Schwartz is Associate Professor at Milano The New School for Management and Urban Policy and Chairman of the school’s Department of Urban Policy Analysis and Management. He is also Senior Research Associate at the Community Development Research Center (CDRC). Professor Schwartz’s principal area of research centres on housing and community development, including affordable housing programs, community reinvestment, and community development corporations. His most recent publication is Housing Policy in the United States: 2nd Edition (Routledge, 2010).

About the seminar: The collapse of the mortgage market in the United States and the consequent worldwide financial crisis has been explained in many ways.One explanation, shared by analysts of otherwise opposing political persuasions, faults the promotion of home ownership, especially among low-income households. Others see the crisis as the inevitable consequence of securitization and “financialization.” In this paper, I show that, contrary to much of the academic, policy, and popular discourse, home-purchase mortgages were of secondary importance in fueling the surge in subprime mortgages. Far more important were mortgage refinancing for existing homeowners. And although low-income and minority borrowers account for a disproportionate share of subprime loans, the majority went to higher-income and white borrowers. Secondly, I will argue that there is nothing inherent to mortgage securitization that led to the crisis. It was the lethal combination of negligent mortgage underwriting and financial “innovation” (the creation of every more complex and opaque mortgage-backed securities) that caused the mortgage market to collapse, and bring about a worldwide financial and economic crisis of historic proportion.