Debt, Discipline, and Government: Foreclosure and Forbearance in the Subprime Mortgage Crisis

Abstract

According to the Mortgage Bankers Association's (MBA's) National Delinquency Survey of June 2008, and based on their quarterly monitoring of a sample of 44 million mortgage loans,``about 1 in 11 mortgageholders face loan problems'' in the United States of America (Bajaj and Grynbaum, 2008). (1) Although the majority of these struggling mortgagors have missed a monthly repayment and are therefore categorised as`delinquent' by lenders, a sizeable number are said to be`in default' as their delinquency stretches over ninety days or more. Most disturbing, however, are the large and increasing number of mortgagors who, having passed through default, are being punished through`foreclosure'. Foreclosure is the legal process through which lenders and loan servicers exercise a right to sell, or to repossess ownership of, the property which has been pledged as security for a mortgage. The June 2008 levels of mortgage nonpayment are the highest since the MBA first undertook their survey in 1979, and represent a sharp turnaround from 2006 when delinquency, default, and foreclosure were all at their lowest recorded levels.Beneath the aggregate figures for delinquency, default, and foreclosure, the MBA's survey includes measures by loan type (eg prime, subprime), product type (eg fixed rate, adjustable rate), and state. As might be expected, these measures show that rates of delinquency, default, and especially foreclosure are much higher in the`subprime' sector of the market which concentrates on`high-risk' borrowers with low, irregular, or unverifiable incomes (such as workers on temporary employment contracts or the

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