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When Local Housing Becomes an Electronic Instrument: The Global Circulation of Mortgages — A Research Note

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  • SASKIA SASSEN

Abstract

The securitizing of mortgages has brought with it a new channel for extracting household income, bundling it up with other types of debt and selling it off to financial investors. Extending this concept to modest‐income households opens up a global potential market comprising billions of households. The first part of this article examines how mortgages for modest‐income households could jump circuits and function as investment instruments in the secondary financial circuit, thereby making the creditworthiness of mortgage holders irrelevant as a source of profit, to the disadvantage of modest‐income households. The second part examines the potential for this mechanism in major regions of the world. The critical indicator used is the low ratios of residential mortgage capital to GDP, a ratio far lower than in the US and other developed economies. The final section examines the costs of this innovation — for cities, for various countries and for banks. Résumé Avec la titrisation des crédits hypothécaires, est apparu un nouveau canal de prélèvement des revenus des ménages, amalgaméà d’autres types de dettes et revendu à des investisseurs financiers. Étendre ce concept aux ménages modestes ouvre sur un marché potentiel mondial de plusieurs milliards de foyers. Dans une première partie, ce travail étudie comment les prêts hypothécaires destinés aux ménages à revenus modestes ont pu passer d’un circuit à un autre jusqu’à opérer comme instruments de placement sur le circuit financier secondaire, rendant la solvabilité des créanciers hypothécaires insignifiante en tant que source de profit, au désavantage des ménages modestes. Dans une deuxième partie, est examiné le potentiel de ce mécanisme dans les grandes régions du globe. Le principal indicateur utilisé est la faiblesse des ratios ‘capitaux des crédits hypothécaires au logement sur PIB’, un ratio très inférieur au États‐Unis et dans d’autres économies développées. La dernière partie s’intéresse aux coûts de cette innovation, à la fois pour les villes, les différents pays et les banques.

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  • Saskia Sassen, 2009. "When Local Housing Becomes an Electronic Instrument: The Global Circulation of Mortgages — A Research Note," International Journal of Urban and Regional Research, Wiley Blackwell, vol. 33(2), pages 411-426, June.
    • Handle: RePEc:bla:ijurrs:v:33:y:2009:i:2:p:411-426
    DOI: 10.1111/j.1468-2427.2009.00868.x
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    References listed on IDEAS

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    1. Thomas Wainwright, 2009. "Laying the Foundations for a Crisis: Mapping the Historico‐Geographical Construction of Residential Mortgage Backed Securitization in the UK," International Journal of Urban and Regional Research, Wiley Blackwell, vol. 33(2), pages 372-388, June.
    2. Warnock, Veronica Cacdac & Warnock, Francis E., 2008. "Markets and housing finance," Journal of Housing Economics, Elsevier, vol. 17(3), pages 239-251, September.
    3. Manuel B. Aalbers, 2009. "The Globalization and Europeanization of Mortgage Markets," International Journal of Urban and Regional Research, Wiley Blackwell, vol. 33(2), pages 389-410, June.
    4. David Miles & Vladimir Pillonca, 2008. "Financial innovation and European housing and mortgage markets," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 24(1), pages 145-175, spring.
    5. Elvin Wyly & Markus Moos & Daniel Hammel & Emanuel Kabahizi, 2009. "Cartographies of Race and Class: Mapping the Class‐Monopoly Rents of American Subprime Mortgage Capital," International Journal of Urban and Regional Research, Wiley Blackwell, vol. 33(2), pages 332-354, June.
    6. Kevin Fox Gotham, 2009. "Creating Liquidity out of Spatial Fixity: The Secondary Circuit of Capital and the Subprime Mortgage Crisis," International Journal of Urban and Regional Research, Wiley Blackwell, vol. 33(2), pages 355-371, June.
    7. Saskia Sassen, 2008. "Introduction to Territory, Authority, Rights: From Medieval to Global Assemblages," Introductory Chapters, in: Territory, Authority, Rights: From Medieval to Global Assemblages, Princeton University Press.
    8. Kathe Newman, 2009. "Post‐Industrial Widgets: Capital Flows and the Production of the Urban," International Journal of Urban and Regional Research, Wiley Blackwell, vol. 33(2), pages 314-331, June.
    9. Jesus Hernandez, 2009. "Redlining Revisited: Mortgage Lending Patterns in Sacramento 1930–2004," International Journal of Urban and Regional Research, Wiley Blackwell, vol. 33(2), pages 291-313, June.
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    1. Manuel B. Aalbers, 2009. "The Sociology and Geography of Mortgage Markets: Reflections on the Financial Crisis," International Journal of Urban and Regional Research, Wiley Blackwell, vol. 33(2), pages 281-290, June.
    2. Manuel B. Aalbers, 2009. "The Globalization and Europeanization of Mortgage Markets," International Journal of Urban and Regional Research, Wiley Blackwell, vol. 33(2), pages 389-410, June.
    3. Michelle Buckley & Adam Hanieh, 2014. "Diversification by Urbanization: Tracing the Property-Finance Nexus in Dubai and the Gulf," International Journal of Urban and Regional Research, Wiley Blackwell, vol. 38(1), pages 155-175, January.
    4. Gary A. Dymski, 2009. "Afterword: Mortgage Markets and the Urban Problematic in the Global Transition," International Journal of Urban and Regional Research, Wiley Blackwell, vol. 33(2), pages 427-442, June.
    5. Richard Waldron & Declan Redmond, 2016. "Stress in Suburbia: Counting the Costs of Ireland's Property Crash and Mortgage Arrears Crisis," Tijdschrift voor Economische en Sociale Geografie, Royal Dutch Geographical Society KNAG, vol. 107(4), pages 484-501, September.
    6. Kevin Fox Gotham, 2009. "Creating Liquidity out of Spatial Fixity: The Secondary Circuit of Capital and the Subprime Mortgage Crisis," International Journal of Urban and Regional Research, Wiley Blackwell, vol. 33(2), pages 355-371, June.
    7. Desiree Fields, 2017. "Unwilling Subjects of Financialization," International Journal of Urban and Regional Research, Wiley Blackwell, vol. 41(4), pages 588-603, July.
    8. Matthias Bernt & Laura Colini & Daniel Förste, 2017. "Privatization, Financialization and State Restructuring in Eastern Germany: The case of Am südpark," International Journal of Urban and Regional Research, Wiley Blackwell, vol. 41(4), pages 555-571, July.
    9. Alan Walks, 2014. "Canada's Housing Bubble Story: Mortgage Securitization, the State, and the Global Financial Crisis," International Journal of Urban and Regional Research, Wiley Blackwell, vol. 38(1), pages 256-284, January.
    10. Thomas Wainwright, 2010. "‘It's Crunch Time’: The ‘Lost’ Geographies of the Crisis," Environment and Planning A, , vol. 42(4), pages 780-784, April.
    11. Alejandra Reyes & Patricia Basile, 2022. "The Distinctive Evolution Of Housing Financialization In Brazil And Mexico," International Journal of Urban and Regional Research, Wiley Blackwell, vol. 46(6), pages 933-953, November.
    12. Elvin Wyly & Markus Moos & Daniel Hammel & Emanuel Kabahizi, 2009. "Cartographies of Race and Class: Mapping the Class‐Monopoly Rents of American Subprime Mortgage Capital," International Journal of Urban and Regional Research, Wiley Blackwell, vol. 33(2), pages 332-354, June.
    13. Alvaro Luis Dos Santos Pereira, 2017. "Financialization of Housing in Brazil: New Frontiers," International Journal of Urban and Regional Research, Wiley Blackwell, vol. 41(4), pages 604-622, July.
    14. PROSKUROVSKA Anetta & DÖRRY Sabine, 2018. "Is a Blockchain-based conveyance system the next step in the financialisation of housing? The case of Sweden," LISER Working Paper Series 2018-17, Luxembourg Institute of Socio-Economic Research (LISER).

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