Obama says: Everyone can’t own The American Dream

There are a number of fundamental reasons why the housing market bubble burst a few years back.  To me, it all starts with one basic truth- owning a home should not be a God given right for all Americans.

Thank you, President Obama. Late last week, his administration’s much anticipated report on redesigning the government’s role in housing finance was published. While the report largely takes aim at replacing dysfunctional lenders Fannie Mae and Freddie Mac, it also goes further into pushing homeownership beyond the reach of many American families. In my estimation, that is a very good thing. Our economic system should always have realistic checks and balances, or it breaks down. Mortgages are nothing more than loans.  And loans should only be given to those who can show that there is an extremely good chance that they can be paid back.

Unlike his recent predecessors, this president just made a big statement through this report. He’s concluded that our country can no longer afford to sustain its commitment to minting homeowners, regardless of their financial status. The exact quote is, “the government must help to ensure that all Americans have access to quality housing that they can afford. This does not mean our goal is for all Americans to be homeowners.”
The report doesn’t offer any final measures. Instead, it provides three options that the administration could take. But, the bottom line is that this reform takes a bold step in reversing the policies over the last two decades which have allowed Americans with little to no income, very few assets and/or even bad credit, to purchase homes. This will happen because many federal programs that guarantee mortgages for lower-income families will be eliminated and even the Federal Housing Association (the largest government sponsor) will not be allowed to guarantee more than 15 percent of mortgages moving forward.

Of course, many dissenters exist. Some are angry and have actively spoken out against this bill. Representative   Dennis Cardoza, a Democrat from Central Valley, CA says, “How is Joe Six Pack ever going to be able to afford a home now?” And, John Taylor, president of the National Community Reinvestment Coalition said, “For those who are working their way up the economic ladder, there is going to be a narrower opportunity for them to enter homeownership.”

To me, this debate is pretty simple. But, like most politicized issues, creative minds have designed a multi-decade old fictitious storyline to make consumers believe that they can only be living the American Dream if they indeed own a home.  This fantasy looks like a beautiful Norman Rockwell painting that they’ve carefully air brushed for us- three kids, a dog, two cars and the nice split family ranch with a patio. The problem is that Joe Six Pack (as Mr. Cardoza refers to) might actually be better off renting in the long run, than living this reality. But, he has been led to believe that anything less than owning a home is failure.

Ironically, we all now know that one’s house should not be viewed as a primary investment that always increases year after year. That combined with school and town taxes (which only continue to rise) and steady costs associated with keeping one’s house/ property in good shape, might weigh heavily on Joe’s wallet forcing him to make tough decisions. Instead, that same month to month investment could be saved to put his kids through college. Or maybe, Joe could just take more vacations, buy things he cares about and save a little more for retirement. All of those benefits would probably allow Joe to live life at a higher standard and experience the “American Dream” just as he had always hoped to. And of course, he’ll never have to worry about that nasty word ‘foreclosure,’ again.

Comments

[Peter Engel]

I always thought home ownership was the same as a driver's license: a privilege, not a right. In the last decade or so, too many people felt differently, as though they were entitled to what they can't really afford.

This past weekend my wife and I stepped back into home shopping in Brooklyn after several months absence. Practically every new non-luxury condo project is doing FHA loans with 3% down. You'd think the good times never stopped!

I've worked the mortgage boiler room, and the formula is really very simple: the most money is made off the broke and poor. But anyone who buys a house without making 20% down while being able to eat, clothe and pay the mortgage has no business doing so.

I hope this late reckoning of responsibility doesn't get watered down by political pressure and babbling about "the American dream." It's a nightmare if you can't handle it.

As recently as '99, when my wife and I bought our home, you needed 10% down at a minimum--and that was frowned upon, and required mortgage insurance and got you a higher interest rate. To be considered a good risk you needed 20% down, as Peter Engel states. You also had to have several months of expenses in the bank to show you could carry the home, at least for a time, even if there was some unexpected downturn in your life.

What did this requirement do? It forced my wife and I to budget more carefully, save more, and wait until we were truly in a position to buy the house we wanted in the town we wanted, while still affording our other obligations and having a cushion. And renting for an extra year or two didn't kill us.

Going back to strict lending requirements will benefit homeowners, benefit communities, and benefit the country. Only the lenders and brokers who make money from issuing bad loans will suffer.

[Rob]

You and your commenters' blame for the recent -- and for many of us --current financial meltdown is misplaced at best, arrogant and classist at worst. But of course it is often that "joe six-pack" is made the scapegoat while the unbridled rapaciousness and greed of the elites is overlooked. If you took the time to look a little harder you would discover that these government "entitlement" programs provided a giant step up for honest working Americans who PAID their mortgages regularly until the world came crashing down on them as they lost their jobs and health benefits. But apparently owning the roof over one's head should only be available to those of higher social and financial status... you know, the responsible and prudent ones that joe six-pack bailed out with his tax dollars.

[Ed Moed]

Thanks for your comment.
There clearly are hard working "Joe six pack" Americans who have built their credit and enough money to qualify for home ownership, Rob. But, I'm sorry. Many thousands also fall below a line where owning a house isn't realistic and should not be the focus of the American Dream. It just isn't prudent.

[Peter Engel]

Rob, I don't think it's being arrogant and elitist to say that people who can't put together a significant down payment shouldn't buy. It's not a closed club by any means. It's just a question of meeting that criteria, regardless of where you sit on the socioeconomic scale.

Fifty years ago, the only reason my parents could afford the home I grew up in was because my grandfather was living with them. He helped with a significant chunk of the down payment, as well as the income from his union pension that supplemented my father's somewhat meager salary. Otherwise, they'd have stayed renters and perhaps would have been content with that. Who knows. They managed, just as other working Americans of lower incomes do it through multiple jobs, small inheritances, whatever, and manage to build their credit ratings and income along the way.

The problem is that when those very programs you cite fell apart, who felt the after-effects first?