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http://ssrn.com/abstract=1124961
 
 

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Capital in Chaos: The Subprime Mortgage Crisis and the Social Capital Response


Raymond H. Brescia


Albany Law School


Cleveland State Law Review, Vol. 56, pp. 271-318, 2008

Abstract:     
This article explores the extent to which social capital theory can respond to the crisis in the subprime mortgage markets. Building on the groundbreaking theories of Robert Putnam in his book BOWLING ALONE: THE COLLAPSE AND REVIVAL OF AMERICAN COMMUNITY, this article seeks to explore the role of trust and social capital in micro-economic transactions, specifically those involving homeownership in general and the subprime mortgage crisis in particular. The article posits that asymmetries of information, the lack of fiduciary obligations between the mortgage broker and the subprime borrower, the incentives built into the subprime mortgage market as a result of mortgage securitization that promote abusive lending practices, deregulation that led to the influx of subprime mortgage products into communities of color, the limits of anti-discrimination laws to address this influx adequately, and restrictions on refinancing built into securitization agreements have all led to the current crisis. In response to these causes of the current crisis, this article suggests changes to the broker-borrower relationship, the promotion of greater consumer education and the creation of problem-solving courts to address the looming foreclosure crisis.

Number of Pages in PDF File: 48

Keywords: subprime mortgage crisis, mortgage discrimination, law and trust

JEL Classification: D82, D63, E61, E65, K22, K23, K42, L51, O10, O16

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Date posted: April 25, 2008  

Suggested Citation

Brescia, Raymond H., Capital in Chaos: The Subprime Mortgage Crisis and the Social Capital Response. Cleveland State Law Review, Vol. 56, pp. 271-318, 2008. Available at SSRN: http://ssrn.com/abstract=1124961

Contact Information

Raymond H. Brescia (Contact Author)
Albany Law School ( email )
80 New Scotland Avenue
Albany, NY 12208
United States

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