From new deal institutions to capital markets: Commercial consumer risk scores and the making of subprime mortgage finance
The investment fueled US mortgage market has traditionally been sustained by New Deal institutions called government sponsored enterprises (GSEs). Known as Freddie Mac and Fannie Mae, the GSEs once dominated mortgage backed securities underwriting. The recent subprime mortgage crisis has drawn attention to the fact that during the real estate boom, these agencies were temporarily overtaken by risk tolerant channels of lending, securitization, and investment, driven by investment banks and private capital players. This research traces the movement of a specific brand of commercial consumer credit analytics into mortgage underwriting. It demonstrates that what might look like the spontaneous rise (and fall) of a 'free' market divested of direct government intervention has been thoroughly embedded in the concerted movement of calculative risk management technologies. The transformations began with a sequence of GSE decisions taken in the mid-1990's to implement a consumer risk score called a FICOÂ® into automated underwriting systems. Having been endorsed by the GSEs, this scoring tool was gradually hardwired throughout the industry to become a distributed and collective 'market device'. As the paper will show, once modified by specific GSE interpretations the calculative properties generated by these credit bureau scores reconfigured mortgage finance into two parts: the conventional, risk-adverse, GSE conforming 'prime' and an infrastructurally distinct, risk-avaricious, investment grade 'subprime'.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Robert B. Avery & Raphael W. Bostic & Paul S. Calem & Glenn B. Canner, 1996. "Credit risk, credit scoring, and the performance of home mortgages," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), issue Jul, pages 621-648.
- Hopwood, Anthony G., 2000. "Understanding financial accounting practice," Accounting, Organizations and Society, Elsevier, vol. 25(8), pages 763-766, November.
- Burchell, Stuart & Clubb, Colin & Hopwood, Anthony G., 1985. "Accounting in its social context: Towards a history of value added in the United Kingdom," Accounting, Organizations and Society, Elsevier, vol. 10(4), pages 381-413, October.
- Vollmer, Hendrik, 2007. "How to do more with numbers: Elementary stakes, framing, keying, and the three-dimensional character of numerical signs," Accounting, Organizations and Society, Elsevier, vol. 32(6), pages 577-600, August.
- Daniel Beunza & David Stark, 2004. "Tools of the trade: the socio-technology of arbitrage in a Wall Street trading room," Industrial and Corporate Change, Oxford University Press, vol. 13(2), pages 369-400, April.
- Miller, Peter & O'Leary, Ted, 1987. "Accounting and the construction of the governable person," Accounting, Organizations and Society, Elsevier, vol. 12(3), pages 235-265, April.
- Hopwood, Anthony G., 1983. "On trying to study accounting in the contexts in which it operates," Accounting, Organizations and Society, Elsevier, vol. 8(2-3), pages 287-305, May.
- W. Scott Frame & Lawrence J. White, 2007. "Charter Value, Risk-Taking Incentives, and Emerging Competition for Fannie Mae and Freddie Mac," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 39(1), pages 83-103, 02.
- Souphala Chomsisengphet & Anthony Pennington-Cross, 2006. "The evolution of the subprime mortgage market," Review, Federal Reserve Bank of St. Louis, issue Jan, pages 31-56.
When requesting a correction, please mention this item's handle: RePEc:eee:aosoci:v:34:y:2009:i:5:p:654-674. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.