Let's Ditch the Home Ownership Dream
Housing: America still has far too many underwater debtors labeled as "homeowners," but Washington can't bear to let them liquidate. Instead, it saddles taxpayers with ever-costlier bailouts.
The federal government has tried just about every trick in the book to revive the nation's housing market and forestall a feared tsunami of foreclosures. How well have they worked?
The answer depends on how you judge success. If the object is to keep "owners" - really, maxed-out debtors - in their homes, the results have been so-so. But there's another way of framing the issue.
What if it would have been better all along to let the chips fall where they may and not try to stop the liquidation of all that housing debt? Then the answer would be that the government has tried too hard, and has racked up far too much debt for the taxpayers, in a futile effort to delay the inevitable.
We lean toward the latter view. And who knows? Even Treasury Secretary Timothy Geithner, in his private moments, may be inclined to agree. Geithner made an interesting admission last month to a Congressional oversight panel examining the Obama administration's mortgage modification plan. The program's performance looks spotty at best.
More than a third of the 1.24 million people who initially signed up for it dropped out, many of them because they could not verify their income and ability to pay. That in itself is a revealing story.
The Obama administration initially pressured the banks not to demand evidence of income - in effect, reviving the old "liar loan" model that helped create the global financial meltdown of 2008. It later relented and let the banks do a more complete job of checking out the applicants. This culled the ranks, though many of those who left were able to arrange relief through other channels.
Geithner defended this track record by saying, in effect, that the government wasn't trying all that hard to keep people in their homes. He said the program "was not designed to sustain homeownership at a level that would be unachievable, imprudent to try and do."
In this, he was on the same page with panel member Kenneth Troste, a University of Kentucky economics professor, who said the rise in the rate of homeownership was a key reason for the housing crisis and thought it would have to decrease further before the market can stabilize.
We don't know how far Geithner is willing to take this sensible line of thought further, but we have doubts that most of official Washington would go along with him even if he did.
The notion that homeownership is an unalloyed good is deeply ingrained in policy and politics. Powerful interests - homebuilders, the real estate industry, minority advocates - promote it. Congress, especially, seems in thrall to these lobbies and to their myth that homeownership is a ticket to the middle class.
This "American Dream" ideology has led to a massive real estate bubble and financial catastrophe in the past decade, and works its dark magic today. It's surely one reason why Congress refuses to reform Fannie Mae and Freddie Mac, the mortgage market mainstays that, by one Congressional Budget Office estimate, could end up costing the taxpayers $389 billion to bail out. Others put the figure as high as $1 trillion.
Fannie and Freddie got into trouble because they lowered their credit standards, with government's blessing, and tried to convert too many renters into homeowners.
Even now, as they try to clean up their portfolio, they are favoring potential homeowners over investors - that is, would-be landlords. Fannie Mae has a policy of not accepting offers from investors in the first 15 days that one of its foreclosed properties is on the market. The Dream dies hard.
It's time for some politicians with backbone to start asking, publicly, what's so wrong with investors snapping up foreclosed homes. If the market is allowed to work, we would expect perhaps several million Americans to become renters - and quite possibly see their living costs go down.
This would not be a disaster for them or for the country. In fact, without the heavy load of a mortgage, property taxes and insurance, they may make into the middle class a lot faster.