This post continues a symposium on decommodifying urban property. Read the entire series here.
Episodes of institutional change shed light on the nature of property, that “ruling concept” of settler-colonial societies. In the late 1930s, the first redlining maps were produced by the Homeowners Loan Corporation (HOLC). At a time when mortgage records were stored on paper lists alphabetized by borrower name, HOLC officers travelled from city to city to interview real estate professionals on local demographics. They created hand-shaded, color-coded maps of racialized neighborhood risk. Recent research reveals that HOLC created these maps too late to affect which mortgage applicants received HOLC loans. Rather, the first redlining maps were created afterwards, to assess the collateral value of existing loans.
Individual loan performance was not highly correlated with redlining maps, and Black HOLC borrowers had particularly low default risk. But redlining maps shifted the appraisal of these financial assets from individual borrowers’ default risk to an appraisal of collateral that was anchored in subjective, abstract, racialized concepts of neighborhood value and risk. Once this shift occurred, lenders reorganized mortgage servicing around neighborhood redlining maps. HOLC promoted the use of redlining maps to guide disposition strategies as it wound down its portfolio in the late 1930s. Abstracting away from tangible, individual loan performance to spatialized, racialized collateral was key to maintain racial hierarchies in housing finance.
HOLC’s redlining maps were in some ways a low-tech prelude to the property reforms of the 21st century, which have enabled not just the commodification of housing, but its collateralization. Under financialized capitalism, government mortgage institutions, private equity firms, REITs, and institutional investors all value homes not solely or primarily for rental income, or even as assets that can be bought and sold. Homes, in this institutional framework, are valuable because they serve as collateral. As collateral, the value of the homes anchors other transactions in deep and liquid markets where secured investments are sold.
In this post, I describe three episodes of institutional change in markets for housing and land. Each example, from changes in mortgage assignments during the 2000s, to the creation of single-family rental securitizations, to development bank reforms of indigenous land tenures, highlights a different aspect of the collateralization of housing. They each underscore the importance of not only decommodifying land and housing—but decollateralizing it.
The Mortgage Electronic Registration System (MERS)
Since HOLC’s invention of redlining maps, property systems continued to evolve. In the leadup to the foreclosure crisis, and in its aftermath, we see housing finance systems again shift to facilitate the collateralization of housing.
Prior to the 2000s, mortgages were rarely transferred, and mortgages were rarely separated from the note. The pace of mortgage transfers rose exponentially with the rise of the private securitization industry. In the early 2000s, in response to the sheer volume of mortgage transactions in what is now a $17.6 trillion dollar market, mortgage securitizers changed how mortgages were registered and assigned.
This change was the creation of the Mortgage Electronic Registration System (MERS). MERS left the system of buying and selling homes intact but shifted the legal process for buying and selling rights to the collateral. These firms abandoned Section 3 of the Uniform Commercial Code (UCC) which prioritized clarity of title and public registration of transactions in mortgage assignments. Instead, mortgage securitizers shifted these transactions to Section 9, the portion of the UCC that concerns contract law.
Once a mortgage is permanently assigned to the MERS system, securities linked to that collateral could be bought and sold without paying filing fees to county deed registers for each transaction. In addition, the proprietary MERS database serves as the only registration of the party holding a beneficial interest in the mortgage. This system allowed for the collateral value of the home to be bought and sold tens and even hundreds of times, while the home itself was never sold.
These changes had three important effects. First, MERS made it impossible for ordinary homebuyers to learn who owned their mortgage. Second, MERS represented a shift in financial institutions’ priorities towards buying and selling mortgage debt, rather than facilitating home sales. Vast profits were made selling the debt attached to a home without any transactions in the primary market. Third, in the secondary market, with the absence of a home sale in the primary market, the value of the collateral is established through appraisals. Therefore, the pricing of debt in secondary financial markets attaches not to the commodity, but to the collateral.
Single Family Rental Securitization (SFRS)
In the aftermath of the foreclosure crisis, institutional investors, private equity firms, and other large corporate investors continued to trade in collateralized debt backed by housing. This time, the vehicle was single-family rentals (SFR). The rise of SFR was facilitated by the invention of single-family rental securitization (SFRS) structures. While single family homes have long been commodified, SFRS allowed large corporate firms to position single-family rentals as collateral for the first time. Since 2011, these firms have continuously expanded their market share.
The first single-family rental securitization was designed by Deutsche Bank in collaboration with Blackstone’s Invitation Homes. The process for innovating this structure was slow, beginning with pilot joint ventures by Fannie Mae, and proceeding through a series of trial designs. An early pilot securitization structure failed to secure a AAA rating as an entity which securitized the rental payment stream. These early proposals to structure SFRS like commercial mortgage-backed securities (CMBS) were rejected. Instead, Deutsche Bank over-collateralized the investment, relying on the value of the homes themselves to secure a AAA credit rating.
With SFRS structures, many expected that large corporate investors would flip foreclosed homes, reselling to homeowners once home prices recovered. This expectation relied on a misunderstanding of how land in housing is structured under financialization. Single family homes are not just opportunities for rental income, to flip homes, or to realize profits through long-term price appreciation—with the creation of secondary markets they acquired value as collateral. Large corporate investors were freed from being distressed property investors and could outcompete homeowners at market prices. Once large corporate investors purchase single family homes, they can borrow against them to purchase more homes. They buy and sell the financial assets collateralized by the homes without ever selling the homes themselves.
Collateralization and indigenous land tenures
In contrast, there is renewed interest in indigenous land tenures as offering examples for a non-commodified relationship to land. Recent developments in Samoa involving the financialization of indigenous land tenures provide a cautionary tale about decommodifying primary markets for land without also decollateralizing, or reducing the link to secondary financial markets.
In 2008, the Asian Development Bank and the Government of Samoa created a Torrens land lease registry. This land registry, historically associated with dispossession of Maori and Aboriginal land, registered leases of indigenous customary land so those leasehold interests could serve as collateral. These laws created financialization and collateralization without fee-simple commodification of the land. That is, like the mortgage assignments in MERS, or the single-family homes securitized into single-family rentals, Samoan customary land is not bought or sold. However, the debt backed by this land-as-collateral circulates in financial markets.
Samoa’s new mortgage laws streamlined communal forms of land ownership, required increasingly swift and decisive court adjudication processes, and dispossessed customary land owners in the diaspora. Even without commodification, collateralization still disembeds customary land from community deliberation, and re-embeds interests in the land within global financial markets. This process of land reform provoked political upheaval and the 2021 constitutional crisis in normally staid, politically stable Samoa.
The Collateralization of Housing
If we trace the real abstraction of property in land to where it intersects with the lived experience, what are the characteristics of collateralized housing?
Commodities need to transact for profits to be realized, but collateral does not. Profits accrue by buying and selling debt attached to collateral without the collateral itself changing hands. The usefulness of housing as collateral is only indirectly tied to rents or home prices, and is governed instead by valuation and appraisal in secondary markets. If prices remain low in secondary markets, large corporate entities can be expected to slowly increase their position as even prices in primary markets rise. And, secondary market valuation relying on spatialized, abstract appraisal of collateral value and risk provides a framework for reproducing racial hierarchies, which are key to producing value in real estate markets.
Because collateralization does not require transactions in the primary market, it seems to dovetail well with communal forms of tenure like community land trusts, shared equity, or even indigenous forms of ownership, in which sale of land or housing are restricted or prohibited. However, the pressures from financial investor interests to streamline transactions, prioritize investor claims and centralize control over land remain. These pressures continue to create dispossession and social turmoil.
Proprietary systems which enhance investors’ standing to foreclose and eliminate transaction costs in secondary financial markets reduce clarity of title in real property markets, and shift the balance of power away from residents and towards investors. Homeowners facing foreclosure and renters facing eviction have difficulty identifying their counterparty, or organizing alongside other homeowners or tenants who are facing similar problems. Cities and counties dealing with dilapidated structures, inexorably rising rents, or other housing issues face similar problems.
Decollateralizing housing—as a subset of policies focused on decommodifying housing—suggests the importance of policy pertaining to secondary financial markets, which might limit or disrupt the ability of large corporate investors to continue to expand using residential real estate as collateral.
Policy recommendations might focus on reducing the capacity of this system for abstraction by creating rental housing registries which record and publish the owners of residential housing, or by regulating the appraisal of rental housing, thereby reconnecting value in secondary markets to tangible housing as it exists and is maintained. Rental registries could reduce undue market power to extract increasingly higher rents in primary markets by accurately representing investors’ market share in urban submarkets, and combating monopoly power. Policies could also be developed to support tenant organizing around the right to housing in particular submarkets, and in response to particular landlords.
Civil courts which process debt, eviction and foreclosure have become high volume institutions in response to the pressures of financialization. The pace and volume of these courts benefit large, wealthy corporate entities and disadvantage households who are negotiating their right to housing. We should strengthen tenant protections, provide legal aid, extend notice and disclosure periods, and assess substantial filing fees paid by owners to slow the pace of displacement and dispossession occurring through these courts.
As we think about creative ways to finance housing, including social housing, we should attend to the social relations and communities supported by these structures, and how rights are allocated by financial structures underpinning ownership, foreclosure, and negotiation of overlapping interests. We might also act more directly to slow the collateralization of homes by eliminating federal support for secondary markets in SFRS, and ending FHMLC and FNMA investments in large corporate single-family rentals. The government could also restrict the ability of large corporations to acquire and use these properties for collateral by requiring deed restrictions on federally subsidized mortgages and new construction.