What does a crisis look like? This was the view from Isaac’s neighborhood:
In 2004, like tens of thousands of other people, I decided to buy a home in San Diego. It was a seller’s market. Prices were going up fast. I thought that if I bought a home, those rising property values could be a big chunk of my retirement savings; and I was afraid that if I did not buy a home, I might be priced out of the market forever.
My first day looking at homes was also my last. After a long day of disappointments (the interior of one condo was damp and mossy from the winter’s heavy rains, and another was dark as a cave at midday) my real estate agent brought me to a sunny little condominium apartment with a patio and a nice kitchen in a walkable urban neighborhood. It was small, but it was the only decent unit I had seen, and if I wanted it, I thought, I had to make an offer immediately. Housing prices were going up faster than the pay scale at my job; I feared that soon even a small apartment like this one would be out of my reach. The local alternative paper had just published a story about the real estate bubble. But I also remembered reading in the newspaper that Alan Greenspan, the chairman of the Federal Reserve, had said that there was not a housing bubble. Who are you going to believe, I thought, someone you never heard of who writes for the San Diego Reader, or the chairman of the Federal Reserve? I bought the condo.
My new neighbors were first-time home buyers like me. Many of them had stretched financially to afford a down payment. It seemed like a good time to make the stretch. If you took the right kind of mortgage, you could get starting interest rates lower than anyone could remember. There was no sign that interest rates were going up anytime soon; and when your mortgage payments did start to go up, you would still have time to lock in a relatively low monthly payment by refinancing. In the meantime, the value of your home would have increased, and with more collateral you could expect better loan terms. That’s how it had worked for other people I knew.
But soon home prices stopped going up. When my neighbors’ mortgages reset to higher interest rates, some of them could not refinance. Other calamities befell them, too. One couple in my neighborhood split up; without two incomes, the partner who stayed could not afford the mortgage, and soon the condo was in foreclosure. Another acquaintance in my neighborhood got a diagnosis of cancer. When his medical bills came due and his mortgage reset to a higher monthly payment, he had to choose whether to pay the medical bill or the mortgage bill. He chose the medical bill. Yet another neighbor was laid off from his job. Before long, many of the homes in my neighborhood—including several units in my building—were in foreclosure.
As foreclosures spread, my up-and-coming neighborhood started to feel like a neighborhood on the way down. More and more homes stood vacant. You could tell the foreclosed homes by the empty driveways and the padlocks on the door. More and more storefronts stood empty, too. I felt lucky that I could stay in my home. But my life savings weren’t worth much anymore, because I had sunk them all into buying the home, and now banks were auctioning off basically identical homes for less than half the price I had paid.
Four years after I bought the condo, almost to the day, I woke to a steady dripping sound. Water was seeping through my bedroom ceiling. The apartment above mine was in foreclosure, and while it stood vacant, the plumbing had sprung a leak. I was literally underwater.
Many Americans who were first-time home buyers in the boom years could tell similar stories about displaced neighbors, disappearing life savings, and nuisance properties left behind. Most of these first-time buyers did not lose their homes to foreclosure, but many of them felt the external costs of foreclosures in their neighborhoods. Like Isaac, most of them probably lost track of their former neighbors.
This book is about those displaced neighbors and what happened to them next. It goes beyond individual stories to present the first representative portrait of the Americans who lost their homes in the mortgage foreclosure crisis in the years from 2007 to 2012. We draw on original survey research conducted in the peak years of the crisis to describe who those dispossessed Americans are, where and how they are living now, and what they have to say about the quality of life in their communities and about American politics. The details add up to a sobering picture of American people and communities down on their luck. The people who lost their homes in the foreclosure crisis are in most respects as diverse as American adults as a whole, except that their financial circumstances are worse, their neighborhoods face more social problems, and they have little voice in politics.1
Like any work of scholarship, this book is also personal, and it reflects our own training and experiences. Isaac is a professor of sociology. He teaches in a program on urban studies, and he has spent more than a decade conducting research on the political economy of housing, property taxes, and mortgage markets. San Diego, where he lives, was one of the most overheated housing markets during the boom years. Many of his students became homeless during the crisis.
Chris is a professor of sociology and the academic director of the National Center for Suburban Studies. His graduate training was in urban geography, and he has written and edited several books and articles about housing displacement and diversity in the suburbs. He lives in New York City, near the center of the financial industry, and teaches at a suburban university close to neighborhoods that had some of the highest foreclosure rates in the region. He has also collaborated with grassroots community groups to measure the extent of the crisis, and to develop a response to the crisis in the hardest-hit communities. He has worked with community members to develop a land trust that would acquire foreclosed properties and resell them as permanently affordable owner-occupied homes.
In addition to our professional reasons to pay attention to the politics of mortgage foreclosure, we share a sensibility and a generational experience, both of which informed this book. We were born in the 1970s. Our parents’ generation benefited from federal regulations that stabilized the mortgage market for decades after the Great Depression. We grew up during the era when these regulations were being repealed. We are old enough to remember when a crisis like this seemed unthinkable, but young enough that we are about the same age as the typical person who lost a home to foreclosure in the crisis years. We see the mortgage foreclosure crisis as one of the greatest public policy failures of our lifetime.
We wrote this book because our society and our political system have not yet come to terms with that failure. When the mortgage market fell apart, millions of Americans were stripped of their homes and plunged into financial insecurity. The crisis is a test of how well American democracy can provide for this invisible minority among us.
Our hope for this book is that it will help our democracy pass this test by making the fate of the dispossessed Americans more visible—to the readers of this book; to one another; and to our elected officials. To look closely at the aftermath of the foreclosure crisis is to dwell on the ways in which we have failed each other. It is not a pleasant picture. But we cannot afford to look away if we are going to learn the lessons of this crisis. In a democratic society, we all share responsibility for the fate of the dispossessed among us.
1. A note on terminology: when we refer to the foreclosure crisis, we mean the abnormally large share of homeowners who lost their homes, either by foreclosure, or because they could not afford mortgage payments and so they sold or gave up their homes under the threat of foreclosure, in the period from 2007 to 2012. Other scholarly definitions of the crisis refer to something either narrower or broader than the subject of this book. At one extreme, many commentators refer to the “subprime mortgage crisis,” and thereby implicitly define the crisis narrowly as a problem that only beset borrowers who took out mortgages of the particular category called “subprime” (e.g., Robert J. Shiller, The Subprime Solution: How Today’s Global Financial Crisis Happened and What to Do About It, Princeton: Princeton University Press, 2008). This usage is further complicated by unnecessarily politicized disputes over the precise definition of a subprime mortgage, though common industry usage prior to the crisis reserved the label “subprime” for relatively high-interest loans to borrowers whose poor credit ratings would not permit them to qualify for loans at or near the best interest rate. Subprime mortgages, so defined, were indeed at the center of the crisis as we define it, but the crisis did not stop with them.
At the other extreme, some scholars have lumped the foreclosure crisis together with the more general economic crisis that it precipitated, thereby implicitly defining “the crisis” in such general terms that foreclosures are only a small part of the picture. This usage draws attention to the ways in which the performance of the world economy was bound up with the performance of U.S. mortgage loans in the early twenty-first century. Some scholars have gone even further toward abstract and general definitions of the crisis. According to Peter Marcuse, for example, the foreclosure wave that began in 2007 is merely one aspect of a more general housing crisis, which itself refers to a general failure of market economies to supply adequate housing to meet human needs; see Peter Marcuse, “A Critical Approach to the Subprime Mortgage Crisis in the United States: Rethinking the Public Sector in Housing,” City and Community 8, no. 3 (2009): 351–56. By this definition, the crisis is not an unusual or decisive moment, but is a chronic problem that has been going on for centuries. A very general definition such as this may be useful for some analytic purposes—for example, if one wishes to compare a market economy to another way of providing housing—but it is overly general for our purposes. We avoid such a general definition of the crisis because we wish to keep a tight focus on the homeowners who lost their homes following the crash of 2007.