Secondary Mortgage Markets & Place-Based Inequality: Space, GSEs and Social Exclusion in the Philadelphia Region

Abstract

Secondary Mortgage Markets and Place-Based Inequality: Space, GSEs and Social Exclusion in the Philadelphia Region Michael H. Norton Temple University, 2015 Doctoral Advisory Committee Chair: Dr. Anne Shlay In 2015 virtually the entire US mortgage market is subsidized by US taxpayers. When the Federal Government took control of the Government Sponsored Enterprises (GSEs) Fannie Mae and Freddie Mac in the summer of 2008, US tax payers assumed responsibility for the vast majority of outstanding mortgage debt in the country. This dissertation examined the historical development and contemporary activity of the secondary mortgage market to understand the way the secondary market contributes to the reproduction of place-based inequality in American cities. Specifically, this dissertation analyzed the political-economic history of the secondary mortgage market to ground a contemporary analysis of the impact of secondary mortgage market activity on neighborhood change in the Philadelphia region at the turn of the 21st century. At the turn of the 21st century secondary market institutions coordinated a financial production process referred to in this study as the financialization of space. This process transforms the individual spatial relationships between individuals and their homes into financial commodities that are bought and sold by financial institutions. Individual mortgage loans make the financialization of space possible by providing the raw material that transmits capital embedded in the social spaces of individual homes and communities through secondary market institutions and into the abstract spaces of international capital markets. However, the financialization of space itself is made possible by a number of key contradictions that created considerable tension between the ongoing expansion of finacialized space and mortgage lending to individual home owners. These tensions were built into the very framework of the legislative policies governing the secondary mortgage market. The evolution of the secondary mortgage market was informed by parallel streams of housing policy that alternately sought to expand and regulate the primary and secondary mortgage markets at the end of the 20th century. The confluence of these policy streams initially created the conditions for the GSEs to pioneer financial productions processes that led to the financializaiton of space. At the same time, the emergence of subprime lending in the primary market, combined with the expansion of the secondary mortgage market to unregulated, private institutions, created dual housing markets differentiated by the types of loans available in the primary market and the funding sources for these loans in the secondary market. Throughout the study period (1996 – 2007), the GSEs concentrated the vast majority of all their purchasing activity buying conventional loans in the more affluent areas of the region. On the other hand, private institutions steadily eroded GSE market share in the conventional market, represented virtually the entire secondary market for subprime loans, and were considerably more active purchasing loans made to borrowers in communities that had been historically excluded from the primary mortgage market. Secondary market activity from 1996 to 2007 was significantly associated with changes along key housing and socio-economic conditions from 1990 to 2010. GSE market share was significantly associated with changing homeownership levels in neighborhoods throughout the region from 1990 to 2010. Higher levels of GSE market share were associated with net increases in homeownership in neighborhoods throughout the region. In a similar way, GSE-informed changes in homeownership levels were subsequently associated with significant changes in the percentage of residents living in poverty in neighborhoods throughout the region from 1990 to 2010, particularly on the Pennsylvania side of the region. Unlike the relationship between secondary market purchasing and homeownership, the relationship between secondary market purchasing and poverty levels functions through housing - either by virtue of more affluent residents moving in, or poor residents moving out of these areas. In both instances, GSE market share, and GSE-informed changes in homeownership sharpened differences between the different communities depending on where the GSEs concentrated their purchasing activity. The region’s urban centers, where GSE market share was lowest, experienced the greatest reductions in home ownership throughout the region, and the greatest increases in neighborhood poverty levels. In addition, the spatial relationships between individual neighborhoods exerted significant influences on changes in each of the housing and socio-economic indicators assessed. These findings suggest that space itself, and the spatial relationships between neighborhoods, exerted a significant influence on both secondary market activity and changing neighborhood conditions throughout the Philadelphia region. Over the twenty year period observed in this study, the types of differences between neighborhoods in the region have remained largely the same, while the degree of these differences has intensified during this time. In this way, the spatial distribution of neighborhood types in the Philadelphia region informed secondary market at the turn of the 21st century, which in turn contributed to the intensification of the differences between neighborhood types throughout the region. The findings presented in this study point to a number of key implications for theorists seeking to explain the role of space and place in the (re)production of patterns of uneven-development in metropolitan regions, and for understanding the financializaiton of space. In addition, these findings also point to key insights for policy makers currently developing legislation to reform the secondary mortgage market.