Topics: Mortgage, Real estate, Subprime mortgage crisis Pages: 58 (20238 words) Published: January 23, 2013
Fordham Law Review
Volume 76 | Issue 5 Article 1


Home Ownership Risk Beyond a Subprime Crisis: The Role of Delinquency Management Melissa B. Jacoby

Recommended Citation
Melissa B. Jacoby, Home Ownership Risk Beyond a Subprime Crisis: The Role of Delinquency Management, 76 Fordham L. Rev. 2261 (2008). Available at:

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ESSAY HOME OWNERSHIP RISK BEYOND A SUBPRIME CRISIS: THE ROLE OF DELINQUENCY MANAGEMENT Melissa B. Jacoby* A surge in delinquency among risky subprime home mortgages has produced calls for front-end regulatory fixes as well as emergency foreclosure avoidance interventions. Whatever the merit of those interventions, this Essay calls for home mortgage delinquency management to be conceptualized as an enduring component of housing policy. The Essay identifies and evaluates a framework for the management of delinquency that is not limited to formalforeclosure law and includes other debtor-creditorlaws such as bankruptcy, industry loss mitigation efforts, and third-party interventionssuch as delinquency housing counseling. The Essay also proposes that delinquency management be evaluated through the lens of objectives commonly used to justify public investment in home ownership and home mortgage markets: to build household wealth and economic self-sufficiency, to generate positive social-psychologicalstates, and to develop stable neighborhoodsand communities. Because those ends are not inexorably linked to ownership generally or owning a particular home, a system of delinquency management that honors these objectives should strive to provide fair, transparent, humane, and predictable strategies for home exit as well asfor home retention. INTRODUCTION

Home ownership has become the preferred housing tenure in the United States,1 with corresponding underinvestment in safe and affordable rental * George R. Ward Professor of Law, University of North Carolina at Chapel Hill, and Faculty Fellow, University of North Carolina Center for Urban and Regional Studies. I am grateful to Lei Ding, Adam Feibelman, Kathleen Engel, Anna Gelpem, Elizabeth Gibson, Patricia McCoy, Katherine Porter, and Elizabeth Warren for helpful comments and insights, as well as participants in the international research collaborative Comparative Socio/Legal Approaches to Consumer Overindebtedness, Debt Adjustment and Insolvency, at the 2007 Joint Meeting of the Law and Society Association and the Research Committee on the Sociology of Law where I presented an earlier version. Thanks also to Michael Shumaker for research assistance in the 2006-07 school year, Nick Sexton for library assistance, and the University of North Carolina School of Law and the University of North Carolina Center for Global Initiatives for financial support.




[Vol. 76

housing. 2 Commentators often cite three justifications for investing in and promoting home ownership: (1) it builds household wealth and economic self-sufficiency; (2) it generates positive social-psychological states; and (3) 3 it fosters stable neighborhoods and communities. Home ownership and mortgage obligations do not inherently further these objectives, however. 4 As the recent surge in delinquency among subprime mortgages suggests, home ownership and mortgage obligations sometimes undermine these objectives. A range of parties have sharply criticized recent trends in subprime mortgage lending for undercutting the goals with which home ownership is so often associated.5 Misleading 1. See generally Chasing the American Dream: New Perspectives on Affordable Homeownership (William M. Rohe & Harry...
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