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Immergluck, Dan. Foreclosed: High Risk Lending, Deregulation, and the Undermining of America's Mortgage Market.

Immergluck, Dan.

Foreclosed: High Risk Lending, Deregulation, and the Undermining of America's Mortgage Market.

Ithaca, NY: Cornell University Press, 2009.

251 pp.

ISBN: 9780801447723.

Dan Immergluck challenges the belief that the proliferation of subprime loans in the U.S. over the past few years was an "organic, natural" process focused on increasing consumer access to credit in pursuit of the American Dream of homeownership. Instead, he argues it was a badly orchestrated one, pushed by investors and shaped by deregulation and deceit.

His argument begins in Chapter 1 with a history of U.S. mortgage markets, including key federal regulations to boost homeownership (and the national economy) through increased mortgage capital liquidity. Critical interventions highlighted include the standardization of mortgage products, and the growth of the secondary mortgage market through (de)regulation that encouraged lenders to shed their mortgage portfolios in favor of mortgage-backed securities and related higher-risk structured finance investments.

Chapter 2 reveals the underbelly of federal intervention: the promulgation of discriminatory and segregationist practices through mortgage redlining and restrictive covenants based on race. Federal responses included the Fair Housing, Home Mortgage Disclosure, and Community Reinvestment Acts, but applied only to regulated depository institutions. This freed a growing number of unregulated mortgage lenders from obligations of equitable lending, transparent data reporting, and investments in community development (1).

In Chapter 3, Immergluck sets the stage for the unraveling of the U.S. mortgage market in 2007-2008, in contrast to the first subprime boom of the 1990s. High-risk exotic mortgages--no documentation, interest-only, piggy-back, and low down payment loans, frequently with adjustable rates--proliferated. Predatory marketing and lending practices, coupled with increasing borrower reliance on brokers (paid by lenders to match customers with a suitable loan product), helped fuel defaults. The rapid growth of private-label securitization of higher-risk mortgages packaged into complex investment vehicles spelled trouble. Chapter 4 offers Immergluck's punch line: deregulation, coupled with incentives to misrepresent risk to the next person along the chain of investment, destabilized the foundations of the U.S. mortgage market. Powerful agents of the mortgage market--from brokers, to credit rating agencies, to global capital markets--underestimated risk, lacked accountability in their transactions, fueled the demand for high-risk mortgages, and drove up housing prices in a vicious circle.

In Chapter 5, attention turns to the aftermath of the mortgage market collapse for borrowers, communities, local governments, and investors. While this evidence is still a bit thin, the discussion is a significant contribution to determining the most appropriate responses to each "victim" of this crisis, although Immergluck does not provide substantial suggestions here. What he does do in Chapter 6 is analyze policy responses to high-risk lending from 1995 through 2008. Highlighting the "race to the bottom" between federal regulators to loosen standards, and the preemption of state predatory lending laws meant to curb abusive, risky home loans, Immergluck implicates the federal government in contributing to the foreclosure crisis. There is, however, an ideal way forward, which he outlines in his final chapter: a system with adequate checks and balances for all affected parties.

While some may fault him for his light attention to how to clean up the mess left behind for households and communities, Immergluck admirably accomplishes his intended goal. He presents a timely, comprehensive text analyzing the chinks in the armor of U.S. housing finance, illustrated with useful charts to unpack complex cycles and relationships. He responds to critics placing blame on the Community Reinvestment Act, as well as the affordable housing goals for Fannie Mae and Freddie Mac, for fueling increased high-risk lending to low-income borrowers. He also engages with those who emphasize personal responsibility, disclosure requirements, and homeownership counseling as central components of future reforms.

This book may be hard to follow in some places for those unfamiliar with the terminology and the housing policy history of the United States. While Immergluck generally provides good overviews and definitions, they are not always presented chronologically, and definitions are not always offered where needed. This book serves well as a detailed text for graduate students, and provides those with intellectual curiosity an advanced account of the recent U.S. foreclosure crisis for purposes of personal edification or course teaching and discussions.

(1) Immergluck elaborated on these issues in his 2004 book, Credit to the Community (Armonk, NY: M.E. Sharpe, Inc.)

Corianne P. Scally

Department of Geography and Planning

University at Albany, State University of New York.
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Author:Scally, Corianne P.
Publication:Canadian Journal of Urban Research
Article Type:Book review
Date:Dec 22, 2010
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