We are led to believe that if the government freezes mortgage rates the foreclosure problem will go away. Only a small proportion of foreclosures are the direct result of mortgage rate adjustments. According to Countrywide, most foreclosures are the direct result of reduced income from job lost, unexpected health problems, death or divorce. While subprime loans may have been the straw that exacerbated the over leveraged, under regulated debt-market, the resulting credit crunch topples all that teeter. People are being pushed to their limits.
The mortgage crisis is a result of collusion between real estate brokers, appraisers, bankers, and the government. The house market became dependent on a steady price increase to permit refinancing. Without refinancing homeowners were unable to escape high initial mortgage rates. Eventually, without substantial inflation, houses had to become unaffordable. House prices had reached levels that often required most of a household’s income. Subprimes were just a frantic attempt to continue a pyramid.
As a result of constant lobbying by the real estate and banking industry, the government has done everything that it can to promote homeownership as the "American Dream." It is subsidized by mortgage tax deductions, inflation and the willingness of Freddy Mac to continually raise the loan bar. After the bailout of the saving and loans in the ‘90s, mortgage lender came to believe that the Feds would always support rising house prices.
The real estate industry, with the acquiescence of a heavily lobbied government, has created the homeowner myth by a constant stream of propaganda. We were told that as the price of goods inflates our savings dwindle, but house prices consistently appreciate and are a hedge against inflation. Also, we were told that our house is an investment, and, for most of us, our biggest investment. It consumes most of our income. According to this "reasoning," by building "equity," we can refinance and reduce our payments, and as our equity grows, we can "trade up." We were told that buying any house will "get our foot in the door." A hole in a wall is thus a "starter," "fixer-upper," or in the picturesque real estate jargon, a "diamond in the ruff." If we dared to complain about the stratospheric price of houses, we were told, "Hey, it’s just the law of supply and demand!"
Homeowners have been hoodwinked into believing that their home is a nest egg. Houses are not capital goods; they’re consumables. Unlike a business, putting money into a house does not result in the production of goods or jobs.
Trying to freeze prices at their astronomical peak is ludicrous; these prices are the major cause of increasing foreclosures. Funding cities to buy and fix-up foreclosures does nothing to help the previous owners. It only bails out the mortgage bankers and provide income to the same builders that helped cause the problem. Such funding was pushed through Congress by the fierce lobbing of homebuilders.
We are told that falling house prices hurt the economy. It’s true that homeowners are emboldened to spend more when they perceive that their equity is high, but such behavior led to the current mess. If house prices are low then mortgage payment are low and homeowners have more disposable income. They are able to buy goods, insurance, and save for unexpected adversity thereby reducing the risk of delinquency and the interest rate on their loan.
We are told that since foreclosed houses become "drug houses’ and will run down neighborhoods, tax payers must buy these houses at high "fair market" prices. Boarded-up houses overgrown by weeds are certainly hard to sell, but why don’t the mortgage banker rent these houses? Why didn’t they rent them to the previous owners? According to the Chicago Tribune, many lenders foreclose but never take possession. By dumping houses they avoid taxes on them and are entitled to a 100% write-off.
High priced housing, is a drag on an economy, Companies must pay a premium salary to workers, who must immediately pay this premium to mortgage lenders. Most of this premium goes into expanding the real estate industry. Many companies become unprofitable because of this real estate tax. They move or fold.
The current recession is not a result of the "mortgage meltdown." Both are the result of lax regulation by the Bush Administration and the banking lobby during the Clinton Administration that brought about the repeal of the second Glass-Steagall Act. This Act was passed in 1933 to prevent the type of bank collapse that accompanied the 1929 stock market crash. Essentially, it erected a wall between speculative finance and commercial banks. It could have prevented the packaging of subprimes and other risky ventures, and passing them off as low risk securities. This is certainly the main cause of the crunch.
The mortgage meltdown was not an act of nature. It was the result of greed. Most foreclosed homeowners will not become homeless; most will become renters. We need to reassess our priorities. The victims of Katrina were made homeless by an act of nature and government failure. They were displaced or stuffed in formaldehyde-laden trailers. They still need our help. John Edwards focused our attention on the 200,000 homeless veterans. According to the United States Interagency Council on Homelessness, the Veterans Administration has a 10-year plain to help these veterans. Why not now!