Tuesday, April 03, 2007

Moron The Housing Crisis

Only a moron could say this with a straight face:
"The more people who own their home, the better off America is," President George W. Bush said in a 2004 speech. "See, we want more people owning something because when somebody owns something, they have a vital stake in the future of the country."
This is so pre-9/11 thinking. Actually, it's so pre-Reagan thinking.

The history of home ownership in this country is one which saw homes, actual buildings with one family in them, as a fairly recent development for the masses: specifically, post-World War II and the GI Bill with its Montgomery mortgages. Key word here is "mortgage." Bypassing the bank loan process almost entirely, Montgomery mortgages required no down payment and charged below-market interest rates.

This allowed families to move out of crowded cities into suburban areas, with space and land and autmobiles, and the concurrent boredom and depression from a lack of activity and stimulation (thus enters television, but that's a different post). Meeting this demand was the construction method employed most famously at Levittown, NY: cookie-cutter home construction. Building was cheap, because each house was nearly identical in structure, and fast. At its peak, Levittown opened 30 new houses a day.

It was also very white, but that's another digression.

Prior to World War II, however, the average American family lived in a multi-generational home or neighborhood or farm. Non-farming families usually lived in an apartment or several apartments in the same rental building. Grandma was either in the next bedroom or the next apartment. When children grew and married themselves, they would rent an apartment in the same building or the same block.

Key word here: "rent". No one had debt. No one could afford houses. People lived hand to mouth and if they could sock away a few dollars a month, then they were doing pretty well.

So the "American Dream" of owning your own home is a really modern concept. Our is perhaps the second or third generation to experience it, which in "America time" with its lack of a sense of history means it's a rock solid given:
After stagnating at about 65 percent for much of the 1960s, '70s and '80s, the U.S. homeownership rate has risen slowly in the past 15 years to nearly 69 percent -- a point of pride for Democrats and Republicans alike.

But with an estimated 1.5 million homeowners facing foreclosure this year, Congress is now looking at tighter lending standards to protect unwary Americans from taking on loans they cannot afford.[...]

Across the United States, racial minorities are more likely to get a high-cost, subprime mortgage when buying a home than whites, according to a study released last month by fair housing agencies. In six major U.S. cities, black borrowers were 3.8 times more likely than whites to receive a higher-cost home loan, it said.

But it is not just poor and minority Americans who are losing their homes -- many debt-ridden consumers simply were unwise in their loan choices. The suggestion that more regulation is needed to protect Americans from willing but risky lenders is controversial.
(I'll cover the racial aspect of this problem at another time, but I do want to acknowledge that this is not helping minorities and both parties are going to be hurt by this at the polls.)

Once the home buying market received its enormous boost in the arm from the returning veterans on the G I Bill, people who saw on TV shows like Donna Reed and Life With Father fell into a subtle marketing trap: human society has dictated all along that acquisition was useful, that you needed to keep up with the Jones': if your neighbor's farm had oxen instead of horses to pull a plow, well, suddenly, damn, those oxen made sense for you to have.

But look what happens: our neighbors were no longer the Jones', but the Days and the Stones, and the Petries with the lovely house in Scarsdale and the hair dying and the new cars and the pearl necklaces. Gotta have that!

So the second wave of home ownership started, as people who were too nervous about moving out to the "country" realized that tens of thousands of people made the drive or the train ride in each morning, waxing poetically about the first robin of Spring on the lawn (nevermind the mowing, the raking, the weeding of said lawn). Banks began lending money with an eye towards helping you get your house. After all, you'd be making them money eventually, as they took the money you deposited at 3% and made more mortgages at 5%, with a twenty percent down payment, and payments that included a little slice-o-equity in the house. Everyone made out on the deal.

And finally, that well dried up. And banks, having made enormous money off mortgages, started lowering their standards. Down payments went to ten percent, then five. Balloon mortgages, where you still put up a down payment but paid only interest for fifteen or thirty years then started making principal payments, became the vogue. More important, the banks themselves held these obligations on their books, so they had an incentive to help you work out of any hiccup or difficulty in repaying them. Your mortgage officer was on the hook, performancewise, for your bad debt. He (and soon, she) took a good long look before lending against your life's wages.

And then the predatory lenders filed in. And with them, the ability to slough off mortgages at a discount for cash and to lay off the responsibility of a bad loan. And that's where we are today.

Those early mortgages were made to people with means and incomes that were relatively secure: you didn't lose your job unless you deserved to (were fired). No corporation contracted their operations because the bottom line demanded it, unless they were in grave and serious jeopardy of filing bankruptcy (which for a business in the 60s and early 70s was tantamount to closing up shop). No major merger saw massive layoffs as administrative and back-office corpses were floated down the river.

And no technological advance could replace the human brain.

Now, with all the uncertainty in jobs, with the job hopping that people do (the longest I've held a job is ten years; The next generation up from mine would see that as a sin.), and with the availability of easy credit as mortgages can be sold off by lenders along with the concurrent risk of default, more debt is probably the worst thing a President, who himself has finally run up a national debt to rival and exceed the combined debt of each and every American, could encourage.

What a moron!