Collateral Matters: Housing Code Compliance in the Mortgage Crisis

Abstract

This article first describes the paradigm shift in mortgage loan servicing over the past two decades. Securitization of mortgages as commodities and exotic financing products changed the position and role of mortgage loan collateral. As new and unregulated mortgage servicing and debt collection practices were increasingly insulated from mortgage ownership, collateral as a securing factor became remote and overlooked by mortgagees. Meanwhile, the collateral matters greatly to those proximately affected by the neglect of its condition. Mortgagees, but not servicers, are listed in public records as the party holding the legal interest in the property while the mortgage industry deems the servicers to have complete control over the real property abandoned by owners. This change renders conventional housing code compliance procedures obsolete in the face of massive loan failures. The article then suggests that new strategic thinking is needed to redesign and retool code compliance processes. It offers some examples of changes that are needed. There is still imminent disaster for many homeowners, neighborhoods and communities from serious blight. Upgrading local code enforcement and being strategic in its application is essential in order to limit the damage resulting from the mortgage crisis.

Keywords: code enforcement, mortgage crisis, housing, housing codes, public health, neighborhood safety, housing value, blight, police power